Stock is an ownership share in a public company that represents a claim on the company’s assets and earnings. Often times, stocks can rise and fall in value due to a variety of factors including earnings reports, economic indicators, and investor sentiment. When a company is more profitable, demand for its shares tends to increase, and the price of those shares will rise as investors are willing to pay more to own them.

When a company decides to offer its shares to the public for the first time, this is known as an initial public offering (IPO). Once a company is publicly traded, its shares are available to all individual investors through a trading exchange such as the New York Stock Exchange or NASDAQ. Once the IPO is complete, the company’s share price can start to fluctuate as buyers and sellers continually negotiate an appropriate price.

Most people that invest in stocks do so by purchasing mutual funds or exchange-traded funds (ETFs), which contain a large number of individual stocks pooled together. This allows a person to gain exposure to a wide range of companies without the cost and hassle of buying and selling individual stocks directly. Some employer-sponsored retirement plans, such as 401(k)s, may also invest in individual stocks.

In addition to the potential for strong returns, owning stock offers a number of other benefits to investors. Most importantly, if a company in which you own shares goes bankrupt, you are not personally responsible for the debts of that company. This differs from other types of companies such as partnerships, where creditors can go after the partners’ personal property if the partnership is unable to repay its debts.

There are two primary ways that investors make money from owning stock: through dividends and capital appreciation. Dividends are a portion of the company’s profits that are paid out to shareholders, usually on a quarterly basis. Capital appreciation is when the share price of a stock rises over the course of your ownership, resulting in you being able to sell your shares for more than what you originally paid for them.

It is important to keep in mind that all investments carry a certain amount of risk, and stocks are no exception. It’s always wise to diversify your portfolio by investing in a variety of different types of companies, industries, and regions. While there is no guarantee that any particular investment will be successful, history has shown that stocks have historically offered higher long-term returns than other types of investments such as bonds and cash. However, past performance is no indication of future results, and you should always develop a comprehensive financial plan that includes your investment goals and a reasonable level of risk for your situation.