A stock is a partial ownership claim in the earnings and assets of a company. Companies sell shares of their business to investors, who then buy and hold those shares for the long term in hopes that the company grows and the value of the share goes up. The growth potential and speculative nature of stocks make them a key component in many portfolios. In the past, equities have provided higher returns than cash or bonds.

Stocks are a part of every investor’s financial portfolio. But before you jump in, it’s important to understand how they work. Here’s what you need to know.

The primary way stocks help to grow your money is through capital appreciation. As a general rule, stocks rise in value when the underlying business improves. This can come from increased revenue, future prospects or both. A company’s stock price can also be influenced by the overall economy and market conditions, but that is not usually a primary driver.

In addition to earning a return on your investment, stocks can pay you dividends. These are a portion of the profits the company makes, and they are typically paid on a regular basis. However, not all companies pay dividends and it’s important to understand the difference between a dividend paying company and one that doesn’t.

Another key benefit of stocks is that they tend to rise and fall in line with the broader economy. This can offer a great opportunity for diversification by providing opportunities to grow your wealth in line with economic performance.

Investing in stocks can be a great way to grow your money over the long term, but there are also risks associated with owning stocks that can hurt your returns. A sudden drop in the stock market can result in significant losses, so it’s important to consider your risk tolerance before investing.

For those interested in a more hands-off approach to growing their savings, deposit protected saving accounts such as fixed rate bonds, notice accounts or easy access accounts may be an option. These products are generally governed by government regulations and can be sold through traditional brokerages.

Aside from being an essential ingredient in a well-rounded portfolio, stocks are also used to grow the value of food and drink. Stock, also known as bone broth, is a savory cooking liquid made from simmering animal bones or meat, vegetables and herbs for an extended period of time. The flavors from the bones and cartilage are infused into the liquid. The resulting stock can be used in soups, stews and sauces.

When people think about stocks, they often picture trading floors filled with brokers in colorful suits and the whirring of computers. But the reality is that most of these transactions take place electronically on a variety of different stock exchanges. These include the New York Stock Exchange and Nasdaq, among others. Stocks are bought and sold on the basis of supply and demand, and prices can fluctuate significantly in response to a range of factors.