Let’s talk stocks—what are they and why would I invest in them?
Explore what it means to own stock in a company.
July 26, 2021
There’s a lot to know about investing in stocks, so we’ll break it down step by step.
First of all, what exactly is a stock?
A stock represents a piece of ownership in a company. Owning a stock means that you own a “share” of the company, making you what’s called a “shareholder.”
What does it mean to be a shareholder?
Shareholders are part-owners—they share in the company’s profits (and losses). Simply put: If the company makes money, shareholders may make money. If the company loses money, shareholders may lose money.
Most shareholders also have the right to vote in elections for the company’s Board of Directors (a group of people who make business decisions). This allows you to vote for individuals who you believe have your interests as an investor in mind.
How do I buy stock?
Well, you won’t find shares of stock available to buy on a company’s website. But wouldn’t that be easy?
To buy stock, you’ll need 2 things:
- An investment account called a “brokerage” account (like your Plynk account!). This gives you access to the stock market.
- At least $1 to invest. Most whole shares of stock cost more, but with Plynk you can own just a slice of a share for as little as $1.
You can buy stock any time the stock market is open, which is usually Monday–Friday, from 9:30 a.m. to 4:00 p.m. ET. During that time, you’ll see the price of each stock going up and down as people buy and sell shares.
But what if you want to buy stock when the market isn't open? Not a problem! You can still place your order and Plynk will complete it when the market opens next. The only thing is that the price might be slightly different than what it was when you placed your order.
How do I make money?
The whole point of investing in stocks is to make money, right? Here are the 2 main ways that investors do this.
As a shareholder, you may receive what we call “dividends” or regular payments that come out of the company’s profits. Paying dividends to their shareholders is how some companies spread the wealth!
However, not all companies pay out dividends. Some choose to use their profits to re-invest back in their business instead—like opening new locations, developing new technologies, and so on.
Increase in share price
You can also make money by selling your share of stock after its price rises (that’s if its price rises—there’s no guarantee!).
If you sell your share for more than you bought it, you get to keep the extra money you’ve made, minus some taxes.
Why do stock prices change?
Stock prices change based on supply and demand, so if enough people want to buy a particular stock, its price will rise.
Thanks to compound growth, you can take advantage of this price increase over long periods of time. Here’s how it works: As your initial investment grows, the new money that you make also has potential to grow if you keep it invested.
For example, if you purchase 1 share of stock for $10 and it grows an average of 7% each year over 5 years, it would be worth $14. You might be thinking: “Eh, that’s not such an exciting amount.”
The real impact may come as you invest consistently. What if you invest $10 each month for a 5-year period at the same growth rate? You’d have $726. Now that’s more like it.
That’s amazing. What’s the catch?
Of course, your stock may not increase in value every month, or even every year. Each company is different, and there’s no guarantee that its stock price will go up or down.
The value of your investment may drop if the business performs poorly or is negatively affected by some unexpected event. That’s why stocks can be risky investments, especially if you only invest in one company.
What we do know is that the stock market as a whole1 has grown an average of 10% over the last 50 years, and even an average of 12% over the last 10 years.2 So if you can keep your money invested through the ups and downs, there’s potential for it to grow.