Stock—also known as company shares or equities—are a fundamental part of many investors’ plans to build wealth. But, as with any investment, stocks are not always easily understood. This article aims to help you get up to speed on the basics.

The first thing to understand is that, at its most basic level, stocks represent a part-ownership of a public company. When you buy a share of stock, you’re purchasing a proportional claim on the company’s net assets and future earnings. The value of your share can increase if the company grows its sales and profits or decline if it does not. The company can also choose to return some of its profits to shareholders through dividend payments. The combination of both price appreciation and dividend payments can provide substantial long-term returns on your investments.

Unlike the owners of partnership-based businesses, stockholders do not have personal liability for the debts of the companies they own. This means that if the company you own stock in goes bankrupt, you will not have to sell your house or car to pay off its creditors. This limited liability is an essential characteristic of stocks that distinguishes them from other types of investment vehicles.

There are several different kinds of stocks, and each has its own unique characteristics. Common stocks are the most popular and offer a direct link to the success of public companies. They are often seen as the best way to diversify a portfolio of investments, as they can offer both growth and income potential over time.

Other stock types include preferred stocks, mutual funds and exchange-traded funds (ETFs). These have their own benefits and risks that can affect your portfolio. Each has its own unique investment profile and you should consider each before investing.

For example, mutual funds are a form of pooled investment that allows individuals to invest in a wide variety of stocks through a single account. This may reduce the cost of buying and selling individual stocks. However, it can also reduce the control that you have over your investment.

Finally, ETFs are a type of index fund that tracks the performance of an entire market segment. This can be a good alternative to purchasing individual stocks, but it can also carry more risk than a diversified portfolio of stocks and bonds.

The stock market is a fascinating example of the laws of supply and demand. On any given day, the price of a stock is determined by how much buyers are willing to pay and how many sellers there are. Over the long term, the value of a company’s stock is largely determined by its business results, but in the short run, the performance of a specific stock can be driven by how many people are interested in buying or selling it on that particular day.

When you want to buy or sell a stock, you go through a broker. This can be an actual person or an online brokerage firm such as Schwab or Fidelity. You tell your broker what you want to do, and they relay that information to the exchange on which your stock trades. The exchange then matches up a buyer and seller. When the transaction is complete, your broker sends you your share of the company’s stock into your brokerage account.