Why own stock?

Cheat Sheet:

  • To own a piece of a company you believe in
  • To make money

When you own stock, you own a piece of the company. This means you own a share of the company’s profits and assets. It also means you have a special relationship with the company that other people don’t have. You even have a say in how it’s run because you can vote, attend shareholder meetings, and more.

When you own stock, you can make money! There are two ways you can make money with a stock:

First, the value of your ownership stake can go up.  Let’s say you buy 1 share of your favorite company’s stock for $50. The company grows and becomes more valuable.  That 1 share is now worth $60, and you can sell it to make a $10 profit.  Or, you could hold onto it, thinking it might go up even higher.  (Of course, it could go down.  If you sell for $40, you’d lose $10.)

Second, with some stocks you can earn dividends too.  Dividends are company profits that some companies distribute to their shareholders. (Others pour it all back into the business.) This is cold hard cash you get just for being a shareholder!  For example, in May 2017, Apple paid out $0.63 per share in cash to its shareholders.

You can make a lot more money owning stock than putting your money in a savings account. Although stocks go up and down constantly, which means there’s more risk investing in stocks compared to putting your money in a savings account, the reward can be much higher.  The stock market has gone up an average of 9.8% a year over the last 40 years–way more than the 1% you might earn in a savings account these days.

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