What is a Stock?

A stock is an instrument that signifies an ownership position, often called shares or equity in a corporation.

Stocks Defined

As shareholders, you claim a proportional share in the corporation’s assets and profits. Most stocks also provide voting rights, which give shareholders a proportional vote in certain corporate decisions, such as the election of corporate directors.

Common Stock Terms

Common stock: A security that provides voting rights in a corporation and pays dividends after preferred stockholders have been paid. This is the most common stock held within a company.

Preferred stock: Stocks that take priority over common stock regarding dividends and liquidation rights. Preferred stockholders typically have no voting rights.

Microcap stock: A stock in very small companies whose market capitalization, reflecting the total value of the company’s stock, is low or “micro.” Microcap stocks tend to be low-priced and trade in low volumes.

Where to Buy Stocks?

Investors can buy stocks through various channels, including:

  1. Brokerage Firms: Investors can purchase stocks through brokerage firms, including full-service brokerage firms and discount brokerage firms. These firms offer online trading platforms and access to a wide range of stocks listed on stock exchanges, allowing investors to buy and sell stocks directly. Examples of brokerage firms include Charles Schwab, TD Ameritrade, E*TRADE, Fidelity, and Robinhood.
  2. Financial Advisors: Financial advisors can help investors buy stocks as part of their investment portfolio. Advisors may recommend individual stocks based on the investor’s financial goals, risk tolerance, and investment preferences. Financial advisors may charge a fee for their services or receive compensation from the investor through advisory fees or commissions.
  3. Direct Stock Purchase Plans (DSPPs): Some companies offer direct stock purchase plans that allow investors to buy stocks directly from the company without going through a brokerage firm. These plans typically require investors to make regular contributions and may offer discounts on stock purchases and dividend reinvestment options.
  4. Dividend Reinvestment Plans (DRIPs): DRIPs allow investors to automatically reinvest dividends from stocks into additional shares of the same stock. Many companies offer DRIPs as a way for shareholders to accumulate additional shares over time without paying brokerage fees.
  5. Online Investment Platforms and Robo-Advisors: Online investment platforms and robo-advisors offer access to stocks as part of their investment offerings. These platforms provide investors with automated portfolio management, investment advice, and access to diversified portfolios of stocks tailored to their investment goals and risk tolerance. Examples include Betterment, Wealthfront, Vanguard Personal Advisor Services, and Schwab Intelligent Portfolios.
  6. Employer-Sponsored Retirement Plans: Some employer-sponsored retirement plans, such as 401(k) plans and employee stock purchase plans (ESPPs), allow participants to invest in company stocks. Employees can buy company stocks through these plans as part of their retirement planning.

Overall, investors have multiple options for buying stocks. Researching and comparing different options before buying stocks is essential to ensure they align with your investment goals and risk tolerance.