You own a piece of Apple right now. Not directly (probably), but if you have a 401(k) or a target-date fund, there's a good chance a fraction of every iPhone sale flows, in some microscopic way, toward your retirement. About 62% of American adults own stock, either individually or through funds [1]. Most of them couldn't tell you exactly what that means.
Here's what it means: when you buy a stock, you buy a tiny slice of a real business. Not a ticker symbol. Not a line on a chart. A business with employees, revenue, debts, and (if things go well) profits.
That distinction matters more than anything else in this article.
30-Second Summary: A stock is a unit of ownership in a company. You make money two ways: the stock price goes up (capital gains), or the company pays you a share of profits (dividends). The U.S. stock market is worth roughly $69 trillion, and over the long run, stocks have returned about 10% per year before inflation.
What Is a Stock, Exactly?
A stock (also called an equity or a share) is a security that represents fractional ownership in a corporation. When a company wants to raise money, it can sell pieces of itself to the public through an Initial Public Offering (IPO). After that, those pieces trade on exchanges like the NYSE or Nasdaq [2].
If a company has 1 million shares outstanding and you own 1,000 of them, you own 0.1% of that company. You're entitled to 0.1% of its profits (if distributed) and 0.1% of the vote at shareholder meetings.
That last part is real. Owning common stock gives you voting rights on things like board elections and major corporate decisions [3]. Most individual investors never exercise these rights, but they exist. You could, in theory, show up at the annual meeting and ask the CEO a question. A few people actually do.
Stock vs. Share: Is There a Difference?
People use these terms interchangeably, and that's fine. Technically, "stock" refers to ownership in any company in general, while "share" refers to a specific unit of ownership in a particular company. You might say "I own stock" broadly, or "I bought 50 shares of Microsoft." Nobody will correct you either way.
The Two Types of Stock
| Feature | Common Stock | Preferred Stock |
|---|
| Voting rights | Yes (typically 1 vote per share) | Usually none |
| Dividends | Variable, not guaranteed | Fixed, paid before common |
| Price growth potential | High | Lower |
| Bankruptcy priority | Last in line | Ahead of common, behind bonds |
| Who buys it | Most retail investors | Income-focused investors, institutions |
Common stock is what most people mean when they say "stock." You get voting rights and unlimited upside if the company grows. The trade-off: if the company goes bankrupt, common stockholders are the absolute last to get paid. Behind creditors, bondholders, and preferred stockholders [3].
Preferred stock works more like a bond-stock hybrid. You get a fixed dividend payment with priority over common shareholders, but you typically give up voting rights and most of the price appreciation potential. Think of it as trading excitement for predictability.
How You Make Money With Stocks
There are exactly two ways.
1. Capital Gains (The Price Goes Up)
You buy a stock for $50. A year later, it's worth $65. That $15 difference is a capital gain. You don't actually "make" the money until you sell (it's called an unrealized gain until then), but your net worth increased.
Why do stock prices go up? Supply and demand. If more people want to buy a stock than sell it, the price rises. What drives that demand? Earnings growth, new products, favorable regulations, investor sentiment, macroeconomic conditions. Sometimes just vibes. The market is a voting machine in the short term and a weighing machine in the long term, as Benjamin Graham famously put it.
2. Dividends (The Company Pays You)
Some companies distribute a portion of their profits directly to shareholders as cash payments called dividends. These typically arrive quarterly. A company paying $2.00 per share annually at a $50 stock price has a 4% dividend yield.
Not all companies pay dividends. Fast-growing companies (think early-stage tech) tend to reinvest profits back into the business. Mature, profitable companies (think Coca-Cola or Johnson & Johnson) are more likely to pay and grow their dividends. For a deeper look at this strategy, see our guide on how dividend stocks work and how to find them.
A Real-Dollar Example
Priya, a 32-year-old software engineer making $88k a year, buys 50 shares of a company at $150 per share. Total investment: $7,500.
Year 1: The company pays $0.75 per share each quarter. Priya collects $150 in dividends over the year ($0.75 × 4 × 50 shares).
Year 2: The stock price rises to $175. Priya's portfolio is now worth $8,750. Her unrealized capital gain is $1,250. She also collected another $150 in dividends.
Total return after 2 years: $1,250 (capital gain) + $300 (dividends) = $1,550, or a 20.67% return on her original investment. She hasn't sold, so no taxes on the capital gain yet. The dividends, though, were taxable in the year she received them.
Life doesn't always cooperate this neatly. Stocks drop. Dividends get cut. But over decades, this compounding engine is how ordinary people build wealth.
Why Stock Prices Move
This is the question everyone asks, and the honest answer is: lots of reasons, some rational, some not.
Earnings reports are the big ones. Every quarter, public companies report revenue, profit, and guidance for the future. Beat expectations? Stock usually goes up. Miss? Down. The "expectations" part matters just as much as the actual numbers.
Interest rates affect stocks broadly. When the Federal Reserve raises rates, borrowing gets more expensive, future profits are worth less in today's dollars, and some investors shift money from stocks to bonds. The reverse happens when rates drop.
Sentiment and narrative drive short-term moves more than most people admit. A viral tweet, a CEO controversy, a TikTok trend about a particular company. Markets are made of people, and people are emotional. That's not a flaw; it's the system.
The long-term average annual return of the S&P 500 is about 10.77% (nominal) [4]. But that average hides wild swings. In some years the market drops 30%. In others, it gains 30%. The average is what you earn for enduring the chaos.
How Big Is the Stock Market?
The total U.S. stock market is worth roughly $69 trillion [5]. The United States represents about 50.2% of the entire global stock market [6]. There are approximately 4,127 publicly traded companies in the U.S., down significantly from a peak of over 8,000 in the late 1990s [7].
Who owns all this stock? The distribution is lopsided. The wealthiest 10% of U.S. households own about 87% of all corporate equities and mutual fund shares [8]. Only 21% of American families hold individual stocks directly; most people are invested through retirement accounts and funds [8].
That's worth sitting with. The stock market is the single greatest wealth-building tool available to everyday people, and the majority of its benefits flow to those who are already wealthy. Getting started (even with small amounts) is one way to begin shifting that balance in your favor.
Common Risks (And One Misunderstanding)
Market risk: The entire stock market can decline. Diversification across many stocks helps, but during a crash, almost everything falls.
Company risk: A single company can go bankrupt. Enron shareholders went from wealthy to wiped out. This is why owning individual stocks is riskier than owning a broad fund.
Inflation risk: If your stocks return 7% but inflation is 5%, your real return is only 2%.
The misunderstanding: You don't owe taxes on stocks you haven't sold. Unrealized gains (or losses) only matter for tax purposes when you sell. Dividends are different; those are taxable when you receive them [9].
If you want to understand how stocks are actually traded, priced, and matched with buyers, our article on how the stock market actually works breaks down the mechanics.
Your Next Move
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If you have a 401(k) or IRA, check what you already own. Log in to Fidelity, Vanguard, or wherever your account lives. You probably own hundreds of stocks through funds already.
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If you want to buy individual stocks, open a brokerage account at Fidelity, Schwab, or Robinhood (all have $0 minimums and $0 commissions). Our guide on how to buy your first stock walks through every step.
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If individual stocks feel overwhelming, consider an S&P 500 index fund or a total stock market ETF. One purchase gives you instant diversification across hundreds of companies. Use our compound interest calculator to see what consistent investing could grow into over 10, 20, or 30 years.
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Start with money you won't need for at least five years. The stock market rewards patience. Short-term swings are brutal. Long-term trends are remarkably consistent.
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Don't skip the emergency fund. Before investing in stocks, make sure you have 3 to 6 months of expenses in a high-yield savings account at Marcus by Goldman Sachs or Ally Bank. Investing money you might need next month is how people lock in losses. For help building that cushion, check out our guide on how to build an emergency fund.
References
- Gallup. (2025). What Percentage of Americans Owns Stock? Gallup.com. https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx
- NerdWallet. (2025). What Are Stocks? Definition, How They Work. NerdWallet. https://www.nerdwallet.com/article/investing/what-is-the-stock-market
- U.S. Securities and Exchange Commission. (n.d.). Stocks. Investor.gov. https://www.investor.gov/introduction-investing/investing-basics/investment-products/stocks
- YCharts. (2026). S&P 500 Historical Annual Returns. YCharts.com. https://ycharts.com/indicators/sp_500_total_return_annual
- Siblis Research. (2026). Total Market Value of the U.S. Stock Market. SiblisResearch.com. https://siblisresearch.com/data/us-stock-market-value/
- The Globalist. (2025). U.S. Share of Global Stock Market Capitalization. TheGlobalist.com.
- Mentoria / SEC Data. (2026). Number of Publicly Traded Companies in the U.S. Meet.mentoria.com.
- The Motley Fool / Federal Reserve. (2026). Stock Ownership Demographics. Fool.com.
- FINRA. (2024). Stocks. FINRA.org. https://www.finra.org/investors/investing/investment-products/stocks
