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Disclaimer: I am not a certified financial professional.  All articles and posts are opinions expressed by me, a contributor to the Common Cents Finance platform.  The information provided is not a research report or financial advice.  It should not be used as the basis to buy or sell a security, nor is it an offer to buy or sell a security.  This article generates revenue through affiliate commission at no cost to you.

Investing may seem like a very complicated process, but, in actuality, it is very straight forward. Yes, there are a lot of new terms and unfamiliar charts and figures. However, once you get to learn what these are, everything after just clicks. You just have to learn the basics.

Investing in the stock market is one of the best approaches for young people to generate wealth and secure financial freedom at a later point in life. However, may do not know where to start, which is unfortunate, given how easy it is. The first step in learning how to invest is understanding that a stock is.

To understand how to invest, you need to know the absolute basics. There is nothing more basic about investing than knowing what a stock is. If you ever looked into investing, you probably have heard of the term “stock,” but you may not be entirely sure what it means. Further, there are probably people who already invest who are unable to define what a stock is. Understanding what stocks are is a building block of becoming an investor. Skipping this step could make things more confusing for you as you continue. It would be like driving a car without knowing how the wheel works.

What is a Stock?

A stock represents ownership in a company. Yes, when you own shares of stock, you actually become a partial owner of the company. For example, if you were to own ¼ of all shares of stock of Coca-Cola ($KO), I would own ¼ of the Coca-Cola. The total stock for a company is typically referred to as outstanding shares of stock.

Unfortunately, owning a single share of a company’s stock does not mean you are a significant owner of that company. Since there are so many shares of stock for companies, owning one is insignificant in the grand scheme of things. For example, there are currently 17.1 billion shares of Apple ($AAPL) stock on the market. That means owning one share of Apple is the equivalent of owning 0.0000000058% of the entire company, which is a very, very small fraction of the company.

Regardless, you should see owning stocks as a small ownership share in the company in which you invest. As a stockholder, this should make you more prideful of your investments. If you own Coca-Cola shares and see someone drinking a Coke, it should give you a sense of satisfaction. In a sense, that person is consuming one of your products, since you are a partial owner. I personally do this, by keeping an eye out for whatever companies I invest in and take note of it.

The Difference Between Stocks and Shares

Another term you should know is “shares.” Stocks and shares are often used interchangeably, but they do hold two different meanings. When someone says they own two stocks, that person means that they own the stocks of two separate companies.

Shares, on the other hand, refer to a single company. It is a unit of measurement for a single stock. For example, I would say that I own two shares of Coca-Cola, not two stocks of Coca-Cola. If I owned Coca-Cola and Apple stock, I could say I own the stocks of Coca-Cola and Apple.

In the United States, you could get by with using these words interchangeably, but this is not the case in foreign markets. In India specifically, these two words are very distinct, so it is required for you to understand the difference. To read more about the topic, Investopedia has an excellent article on the topic.

Why Do Companies Issue Stock?

Now that you understand what a stock is, you may wonder why a company would issue shares of stock. Why would it give away ownership of its company to the public? There is a very good reason for that: money.

Companies issue shares of their stock to investors in order to raise capital for their business. In other words, a company sells a portion of ownership in its companies to investors to receive cash. By doing this, the company can raise funds, which could be used to expand the business. Maybe, with these new funds, the company can now pursue a new project that would increase its net income or enter a new market to boost sales. Having more funding and capital gives a business more opportunities to grow, which is beneficial for everyone involved.

Issuing stock to raise funds is known as an equity method of funding. This is because the company is giving away equity in return for cash. Companies could use another way to raise funds, and that would be a debt method of funding. In this scenario, the company would issue bonds, which are essentially IOUs, to investors instead of stock. Doing this would not require the company to give up any of its ownership. However, like with any debt, the company would be responsible for paying back the debt plus interest in a timely manner. Both have their pros and cons depending on the situation.

Where Can I Buy Stocks?

To start investing, you would use a brokerage. A brokerage is essentially a financial institution that allows you to invest in stocks and other securities. There are a number of reputable brokerages that you definitely have heard about.

Robinhood

The most popular amongst young investors is definitely Robinhood. In another article, I go into depth about Robinhood as a platform. If you want to learn more about the pros and cons of this brokerage, click here to read more.

If you want a cliff notes version, here is a brief overview. Robinhood has disrupted the entire brokerage industry, as it eliminated commission fees. Originally, investors would have to pay a fee for every stock they purchase. Now, most brokerages no longer have fees. Robinhood also offers interesting features, such as fractional shares, which lowers the barrier to investing for younger people. With this platform, your limited amounts of cash can go a very long way.

If you choose this method, you will receive one free stock when you create an account. To open a Robinhood account and collect that free stock, click here.

WeBull

There are other platforms out there that are very similar to Robinhood. WeBull is another online brokerage that provides commission-free trading. They also offer two free stocks when you sign up and deposit $100. If you are interested in creating an IRA and collecting two free stocks with WeBull, click here to sign up.

Betterment

Betterment is another brokerage you could use. The platform also offers a high-interest savings account, which could also be an interesting option for an emergency fund.  It should be noted that, while Betterment is commission-free, they do charge a yearly fee of 0.25%.  If you are interested in creating an account with Betterment, click here.

Other Brokerages

If you do not want to use any of these online brokerages, there are other many options available.  Brokerages, such as Fidelity and Charles Schwab, are more traditional platforms.  They are both very reputable and have very good track records. So, feel free to do your own exploring to see with which brokerage you’re most comfortable.

Continue to Learn More About Stocks

That was an introduction to what a stock is. Knowing this much is a good foundation to start learning more about investing. However, you need to keep learning. Knowing what a stock is is definitely a great start, but it is not enough in itself. To learn more about investing overall, check out A Beginner’s Guide to Investing.

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Post Author: Anthony Crincoli

Anthony is the Founder and Lead Content Creator for Common Cents Finance. Away from the platform, Anthony is a CPA Candidate and an auditor for a Big Four public accounting firm. He has a passion for personal finance and looks to promote financial literacy whenever and however he can.

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