What are stocks?

Stocks are classified as equity securities that represent ownership in a company. When investors purchase stocks, they buy shares, which are essentially units of ownership in that corporation. This ownership stake gives them rights to a portion of the company's assets and earnings, which can include dividend payments as well as appreciation in share value.

By holding stocks, investors participate in the company's performance and can benefit financially if the company grows and becomes more profitable. Stocks are distinct from debt instruments, such as bonds, where investors lend money to the company in exchange for interest payments, or from investment certificates of deposit, which are savings products offered by banks. Additionally, stocks are not insurance policies; they do not provide coverage but rather represent an investment in a company's equity. This fundamental understanding is crucial for anyone involved in investment and finance.