Stocks: Understanding Ownership, Returns, and Risk

Investors can receive stock returns through price appreciation, dividends, or both.

If a corporation is liquidated, common stockholders generally rank behind creditors and preferred stockholders in claims on remaining assets.

Diversification across multiple stocks and asset classes can reduce concentration risk, but it does not eliminate investment risk.

Stock ownership may provide a proportional claim on a corporation’s assets and profits.

Common stock generally provides voting rights, while preferred stock generally receives dividend and liquidation priority over common stock but often has limited or no voting rights.

A stock is an equity security that represents an ownership interest in a corporation.

Stocks and bonds are different asset classes, and holding both can help diversify a portfolio because they may respond differently to economic events.

Investors can buy individual stocks through a broker or, when offered, through a company’s direct stock plan. Dividend reinvestment plans can use dividends to buy additional shares, and investors can gain exposure to stocks by buying shares of a stock fund.

Stock prices can rise or fall, and investors can lose some or all of the money invested in a stock.