What are stocks?
Definition of a stock
A stock is defined as part ownership of a company. When an individual buys a stock, he or she buys a stake in the assets and earnings of the company. Many large companies need to raise money for research and development, expansion, and other needs, and one of the best ways of doing that is to sell ownership of their companies in the form of stocks. As you own more stock, you gain more ownership of a company, and some stocks even give you voting rights to decide on future company actions.
Physical and Electronic Forms of Stock
There are many different ways to represent one's ownership of a stock. One of the primary ways, although it is archaic now, is to use a physical stock certificate. For example, the one shown below is a stock certificate for the company that produced the Titanic. Obviously this stock was not a very good buy in the long run. (From Investing Encyclopedia, 2004)
However, these days most stocks are found in electronic form instead of paper form. The majority of stock brokerages will keep shares electronically, and you will never see a physical representation of it. This is not a bad thing, since it is more convenient and cuts down on costs.
Limited Liability
One of the great advantages of buying stocks is limited liability. Even though you own part of the company, you are not held personally liable if the company goes bankrupt and has to pay debts. The only money you can lose is the price that you paid for the stock, and nothing more beyond that.
Risks and Rewards
There are obviously many risks associated with stocks, since you cannot accurately predict the market all of the time, and some stocks that you buy are bound to decrease in value. However, the rewards are also great too, and the average annual returns for stocks is higher than that for bonds and many other investments. In addition, some stocks pay out dividends which can make you money even if the stock does not appreciate. Historically, investing in the stock market realizes 10-12% annual gains, and is a wise move for those who have surplus money and want to take advantage of higher returns.
Finding a Broker
In order to actually get started with investing, you will need to actually find a broker. A broker can be a person that you talk to or an online service such as E*Trade or Ameritrade. Because of the wide variety of options serving a wide variety of financial needs, you should research carefully to see which one is best for you.