Stocks, or equities, represent a small portion of ownership in a company. In general, they provide the highest potential returns versus other investment alternatives. Conversely, they tend to be the most volatile investments. However, over the long term, no other form of investment tends to perform better, making stocks a key component of a long-term investing strategy.
The main determinant of a stock’s performance is how successful the company who issued the stock is, although the economy and the market themselves can have an impact.
Many stocks pay dividends which can supplement your cash flow. They can also protect your wealth from inflation erosion since stock returns often significantly outpace the rate of inflation.
There are several ways to own stocks: buy shares of a company outright, invest in equity-oriented mutual funds, or through separately managed accounts and annuities.