Value Line University

Stock Overview

Buying stock makes you a part owner of the corporation that issued the stock. In the past, stocks have offered one of the greatest long term investment returns, in large part because of the strength of the US economy which has been reflected in the growth of US corporations and the price appreciation of corporate stocks.

When a company prospers, investors who own its stock can make money in two ways:

• Current income, if the company pays part of its earnings to shareholders as dividends;
• Capital appreciation, if the price of its shares increases.

Since there is no limit as to how much a company can earn or how high its stock price can go, there is no limit as to how much return a stock investment can provide. Similarly, there is no limit as to how long you can own a stock and continue to benefit from its increasing value either through dividend income or price appreciation. You might also think about stocks as a way to build your estate by leaving them to your heirs in your will or through a trust.

Stocks, also known as equity investments because they give you ownership, can pose risk as well as the opportunity for profit. That's because their price fluctuates in response to what is happening in the company that issued the stock, in the industry of which the company is a part, and in the economy as a whole.

If you sell a stock at a time when the stock market or an individual stock price is down, you might have little or no profit, and you could even lose some, most, or all of your principal.