Stocks explained without the jargon
A stock is a tiny piece of ownership in a real company. Here is how that ownership actually makes you money — and how it can lose money too.
Written for plain-English understanding by Joseph Citizen. Why I built this →
A share of stock is a slice of ownership in a company. If a company has issued one billion shares and you own one share, you own one-billionth of the company. That is it. The fancier word for this is 'equity', which just means ownership.
How stocks make you money
There are exactly two ways:
- Price appreciation — the share is worth more later than what you paid for it. If you buy at $100 and sell at $130, you made $30 per share.
- Dividends — some companies send a small cash payment to shareholders every quarter. Not every company pays a dividend. Younger growth companies usually reinvest profits instead.
How stocks lose money
Stocks go down when the market thinks the company will earn less in the future, or when the broader economy looks weaker, or sometimes for no particular reason at all. In any single year, the U.S. stock market has historically lost money roughly one year in four.
Over long periods — twenty or thirty years — diversified stock portfolios have historically gone up. But over short periods, they bounce around a lot.
What 'the market' means
When you hear 'the market was up today', that usually refers to a stock index — a basket of many companies tracked together. The most common ones in the U.S. are the S&P 500 (500 of the largest U.S. companies), the Dow Jones (30 large companies), and the Nasdaq Composite (heavy in technology).
Quick check on this lesson
Answer each question and we'll show you why the right answer is right — and why the others aren't.
- 1.
What does owning a share of stock actually mean?
- 2.
What are the TWO ways stocks can make you money?
- 3.
What does 'the market was up today' usually refer to?
- 4.
What's a 'dividend' in stock investing?
- 5.
Why do most experts recommend index funds over picking individual stocks for beginners?
- 6.
What's the difference between price and value when buying stock?
0 of 6 answered
Keep the momentum going.
Bonds 101: the IOU you can buy
A bond is a loan you make to a government or company. They pay you interest, then give you your money back. Here is how that actually works.
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Important
This lesson is general financial education only. It is not personal investment, tax, accounting, or legal advice. Examples are illustrative. Past performance does not guarantee future results.