A stock is a part ownership share in a company that allows you to benefit from the success of the business. Stockholders get to vote at shareholders’ meetings, receive dividend payments (if the company pays them), and see the value of their shares rise or fall with the company’s profits or losses. Companies issue stock to raise money for expansion, new products, or other reasons. Over the long run, stocks offer investors a good opportunity for growth—but they also come with risk that they may not make as much as other investments like bonds or real estate.

Investors buy and sell individual stocks through stock exchanges, the primary ones being the New York Stock Exchange and the National Association of Securities Dealers. People looking to buy a specific stock match up with those looking to sell, and brokers facilitate the transaction almost instantaneously. Stock prices rise or fall based on supply and demand for the stock, as well as other factors like economic trends and news about the company or industry.

There are two main types of stock: common and preferred. Typically, common stock gives you the right to vote at shareholder meetings and to receive any dividends the company pays out, while preferred stock entitles you to certain priority in receiving profits or liquidation proceeds before other classes of shareholders. Some stocks are broken down further by the size of the company—for example, large-cap, mid-cap, or small-cap stocks. Finally, there are some stocks that don’t even pay dividends, known as penny stocks.

Investing in individual stocks requires you to be familiar with the underlying businesses. You should understand the financial ratios that help you evaluate a company, including earnings per share, price-to-earnings, return on equity, debt-to-capital, and interest coverage. These ratios can give you a snapshot of a company’s health and the potential for future growth, but they should be taken in context with other information about the business and its market environment.

As a rule, you should plan to diversify your portfolio of stocks—that is, buy stocks in many different companies. This protects you from the possibility that a single company’s stock will decline in value and prevents you from being too heavily dependent on a sector of the economy or on one type of industry.

In addition, you should be aware of the risks of investing in stocks, which include the possibility that a company could fail or go bankrupt, and that the overall stock market can decline. If you follow these rules, however, a well-diversified portfolio of stocks can provide you with a solid source of income over time. You can use a mutual fund or exchange-traded fund to diversify, or you can invest in individual stocks through a brokerage account. Many employer-sponsored retirement plans invest in stocks through mutual funds, which can hold a large number of company stocks pooled together. If you do this, be sure to choose funds with low fees.