{"id":14002,"date":"2022-10-25T12:40:56","date_gmt":"2022-10-25T19:40:56","guid":{"rendered":"https:\/\/www.nerdwallet.com\/ca\/?page_id=14002"},"modified":"2022-10-25T12:40:58","modified_gmt":"2022-10-25T19:40:58","slug":"what-is-a-stock","status":"publish","type":"page","link":"https:\/\/www.nerdwallet.com\/ca\/investing\/what-is-a-stock","title":{"rendered":"What Is a Stock?"},"content":{"rendered":"\n

If you buy stock in a company, you own a small part of its business. You take part in the company’s gains and losses, and depending on the type of stock you own, you may get a share of profits or the ability to vote in shareholder meetings and help direct the future of the company.\u00a0<\/p>\n\n\n\n

What is a stock? <\/h2>\n\n\n\n

When a company wants to raise money for its operations or growth, it sells stocks (also known as shares or equity) through a stock market exchange like the Toronto Stock Exchange, Montreal Exchange or the New York Stock Exchange. <\/p>\n\n\n\n

Buying these stocks \u2014 often referred to as investing<\/a> \u2014 gives you fractional ownership of the company. Your percentage of ownership depends on how many stocks you own in relation to the total number of stocks available.\u00a0<\/p>\n\n\n\n

The total value of all of a company\u2019s stocks owned by shareholders is known as market capitalization or market cap, which is an indicator of the company’s size. <\/p>\n\n\n\n

How do stocks work? <\/h2>\n\n\n\n

Stocks tend to have higher potential for growth than fixed- income assets like bonds, but they also have higher potential for loss. <\/p>\n\n\n\n

If you own stock in a company that\u2019s performing well, the stock value typically goes up, and you can make a profit. If the company does poorly and the stock value goes down, you may lose money. Regardless, gains and losses are realized only when you sell the stock. <\/p>\n\n\n\n

Depending on the type of stock you buy, you might also be entitled to dividends, which are a form of income-sharing. You\u2019re called a shareholder of the company because you share in the company\u2019s profits.<\/p>\n\n\n\n

There are two main types of stocks you can own, with the main differences being dividends and voting rights: <\/p>\n\n\n\n

Common stock <\/h3>\n\n\n\n

Common stock entitles you to fractional ownership of the company, including valuations, assets and profits (and losses). You usually get voting privileges that are proportional to your ownership level. You may also receive dividends, but they are not guaranteed. <\/p>\n\n\n\n

Common stock values have unlimited growth potential over the long term. But if a company goes bankrupt, you could lose all the money you invested in its stock.<\/p>\n\n\n\n

Preferred stock <\/h3>\n\n\n\n

While preferred stocks are considered equities, they behave more like fixed-income investments. Preferred stocks don’t increase or decrease in value like common stocks; rather, you buy a preferred stock for the fixed dividend payments, which are higher than dividend payments on common stocks.<\/p>\n\n\n\n

Unlike common stockholders, preferred stockholders typically don’t have voting rights, but they are ahead of common stockholders for a payout of any excess cash if the company goes bankrupt and liquidates everything. <\/p>\n\n\n\n

How to buy stocks <\/h2>\n\n\n\n

You need a brokerage account to buy stocks in Canada<\/a>. You can go through a stockbroker or financial planner, or open a self-directed brokerage account online.\u00a0<\/p>\n\n\n\n

Within a brokerage account, you can hold stocks in registered accounts, like tax-free savings accounts<\/a> and registered retirement savings plans<\/a>, or in non-registered accounts, which are taxable investment accounts used for short- or long-term investing.\u00a0<\/p>\n\n\n\n

Instead of buying individual stocks, you can also invest in stocks by buying exchange-traded funds<\/a> and mutual funds<\/a>, which are like mini-portfolios of stocks and other types of investments. These are effective ways to dip your toe into the stock market and diversify your holdings without having to do extensive research on individual companies.\u00a0<\/p>\n\n\n\n

Pros and cons of buying stocks <\/h2>\n\n\n\n

Pros:<\/p>\n\n\n\n