What are stocks?

Stock investing tends to yield higher returns than putting your money in a savings account. But like any investment, stock trading has its risks. Starting with the basics, we’ll answer the question “What are stocks?” and then walk through the pros and cons of investing in stocks.

What is a stock in simple terms?

A stock is a tiny piece of ownership in a company. When you buy a stock, you’re buying a share of that company. If the company does well, your share can become more valuable, and you might even earn money through dividends, which is like a reward companies give to shareholders for owning their stock. But if the company performs poorly, the value of your stock can drop, too.

What are stocks? A detailed breakdown

A stock is a small ownership interest in a company. Companies sell stocks to raise money for expansion and development. Say a company is worth $100 million and issues 5 million shares, each share would be worth $20.

Every stock sold gives the stockholder (or shareholder) a small controlling interest in the company, although this interest is usually passive. Stockholders aren’t typically involved in the day-to-day management of a business. The exact rights that come with owning stocks vary depending on the type of stock a company issues, but shareholders may be entitled to the following:

• Voting rights at shareholder meetings
• Monthly, quarterly, annual or ad hoc payments (“dividends”) from company revenue
• Asset rights if the company goes out of business

Like any investment, the value of shares can rise and fall depending on the success and popularity of the company, the strength of the economy, industry-impacting news and other factors.

Stocks vs shares

The terms “stocks” and “shares” can be used interchangeably, but there’s actually a subtle difference between the two.

• Shares are individual units of ownership in a single company. You can own a specific number of shares in a company, say, 100 shares of Shell.
• Stock is a more general term that refers to ownership in one or more companies. For instance, you could say you own stock in Shell, Amazon, Apple and Procter & Gamble.

Benefits of stock investing

• Growth potential. People buy stocks hoping the value of their investment will grow. If a company performs well and its stock price goes up, the returns can be much higher than putting your money in a cash savings account. But success is not guaranteed.
• Dividends. If a company is profitable, it may disburse small payouts called dividends to shareholders. It’s like receiving interest on funds held in a savings account.
• Invest directly in companies you like. Unlike funds, which spread your investments across multiple companies, stocks give you the opportunity to pick the businesses you want to support with your money. You might want to support a startup business’s development or a company that you think is about to take off.
• Voting rights. Stock ownership often gives you the right to vote on important company decisions at shareholder meetings.
• Liquidity. Stocks can usually be bought or sold quickly, giving you access to your money faster than some other investments, like GICs.

Risks of stock investing

• Your stocks may go down in value. If a company doesn’t perform well and you want to sell, you may not earn back what you paid to buy it.
• Losses from having an undiversified portfolio. It’s good to spread out (or “diversify”) your investments across lots of different companies. If an industry or investment type is suffering, the loss can be offset by gains in other investments you own. If you only buy stocks in a small number of companies, your investments may not be diverse enough to withstand short-term losses.
• You’re responsible for managing your stock portfolio. You decide what stocks to buy and sell and when to trade, so you need to research your options, track the performance of your stocks and make sure your portfolio is diversified. In contrast, funds only require that you pick the “type” of fund (for example, low risk or sector specific), but a manager is in charge of everything else.

Does every company have stocks?

No. Company owners may choose to “go public” and sell stocks to anyone, remain privately owned and sell stocks to a limited ring of investors or remain private and not sell stocks at all. While issuing stock helps companies raise money quickly, it also requires giving up some control to shareholder interests, so not all business owners want to go this route.

If 1 person is the only shareholder, they will own 100% of the company. However, many companies choose to sell shares to multiple investors, especially when there are plans to grow.

How many stocks can a company have?

There’s no maximum to how many stocks a company can sell. The amount of stocks varies between companies and may fall between 1 and millions of stocks. The number of stocks isn’t fixed forever either. A company can start off with a relatively small number of stocks owned by its founders, then sell more stocks later to investors.

Different types of stocks

There are two main types of stocks: common stocks and preferred stocks. Common stocks come with voting rights, but preferred stocks don’t. Both common and preferred stockholders could be eligible for dividends, but preferred stockholders will be paid first, so this type of share is generally regarded as less risky.

Deferred stocks are less common and only give shareholders the right to dividends after a certain period or when certain conditions have been met, for example, when the company hits a pre-defined goal.

Growth vs. value stock

Stocks can also be categorized by investment style:

• Growth stocks are shares in companies that are expected to expand faster than the overall market. They often reinvest profits instead of paying dividends and can be more volatile.
• Value stocks are shares in companies that appear undervalued based on their earnings or assets. These stocks may pay regular dividends and are generally seen as more stable.

How to buy stocks

1. Online investment platform. Online investment platforms are usually the cheapest way to buy and sell stocks, although you may not have a lot of guidance on hand from investment professionals. Typically, you execute trades and monitor your investments through an online platform and/or mobile app.
2. Traditional stockbroker. These are firms that buy and sell stock on behalf of clients. Usually, you’ll be able to get advice from regulated professionals. Traditional stockbrokers are typically more expensive than online investment platforms.
3. Regulated financial adviser. This is usually the most expensive way to buy stocks. A financial adviser can recommend specific investment strategies that suit your individual circumstances, taking into account all forms of saving and investing, not just stocks.
4. Robo-advisors. Automated investment services called robo-advisors can buy stocks on your behalf based on your risk profile and goals. They’re cheaper than traditional advisers but easier than managing investments yourself.
5. Employer stock purchase plans. Some companies let employees buy company stock at a discount through payroll deductions, which can be an easy way to invest regularly.

Compare trading platforms to buy stocks in Canada

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Finder Score	Available Asset Types	Account Types	Stock Trading Fee	Monthly Account Fee
Promoted Finder Score 8.8 Great Interactive Brokers	Finder Score 8.8 Great	Stocks, Bonds, Options, Index Funds, ETFs, Forex, Currencies, Futures	RRSP, TFSA, Personal, Joint	min $1.00, max 0.5%	$0	Go to site More info Compare product selection Compare	loading
Finder Score 7.6 Great CIBC Investor's Edge	Finder Score 7.6 Great	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, Precious Metals, IPOs	RRSP, RESP, RRIF, TFSA, Personal, Joint, Business, FHSA	$6.95	$0 if conditions met, or $100	Get 100 free online stock and ETF trades when you open a new account & get up to $15,000 in cashback when you transfer funds from outside CIBC to your new or existing account. Valid until March 31, 2026. T&Cs apply.	Go to site More info Compare product selection Compare	loading
Finder Score 7.4 Great Moomoo Financial Canada	Finder Score 7.4 Great	Stocks, Options, ETFs	RRSP, TFSA, Personal, FHSA	$1.49/stock	$0	Get up to $4,600 in trading perks. T&Cs apply.	Go to site More info Compare product selection Compare	loading
Finder Score 8.1 Great Qtrade Direct Investing	Finder Score 8.1 Great	Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, IPOs	RRSP, RESP, RRIF, TFSA, Personal, Joint, FHSA	$0	$0	Get 5% cash back on every dollar you invest up to $15,000 and 1% cash back on any amount above that. Plus, new clients receive unlimited free trades. Use code QTRADE2025. Valid until January 5, 2026. T&Cs apply.	Go to site More info Compare product selection Compare	loading
Finder Score 9.1 Excellent Questrade	Finder Score 9.1 Excellent	Stocks, Bonds, Options, Mutual Funds, Index Funds, ETFs, Forex, GICs, Precious Metals, IPOs	RRSP, RESP, RRIF, TFSA, Personal, Joint, FHSA	$0	$0	Get free contracts, no commissions and a 30 day free trial of Questrade Plus. Use offer code FREEOPTIONS. T&Cs apply.	Go to site More info Compare product selection Compare	loading

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Finder Score for stock trading platforms

To make comparing even easier we came up with the Finder Score. Trading costs, account fees and features across 10+ stock trading platforms and apps are all weighted and scaled to produce a score out of 10. The higher the score, the better the platform—it's that simple.

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How do I choose which stocks to buy?

To decide which stocks to buy, ask yourself the following questions:

• What type of company do you want to invest in? You could opt for big brands you’re familiar with or companies that match your values, such as those with a focus on sustainability.
• How established is a company? Long-established companies tend to be lower risk than startups, although this isn’t always the case.
• Are there any known risks? Check news headlines or recent company announcements for signs of risks within the company or the overall market.
• How volatile is the stock? A rapidly changing stock price could mean lots of people are buying, thus potentially driving up the price beyond your budget. Or it could mean people are selling, which could be a sign that a company is no longer a good investment.
• Why do you want to buy stocks? We wouldn’t advocate buying shares on mere hunches or just because there’s hype surrounding a company. Always do your own research before buying stocks.
• Does the company pay dividends? Companies that pay dividends can provide a steady stream of income on top of any growth in the stock’s value to maximize your earnings.

If you’re a less experienced investor and want to keep an eye on things before buying, most trading platforms will have watchlists to help you monitor stock performance over time.

Diversifying your portfolio

Buying stocks in just one company, or even several companies, is a high-risk strategy. If something goes wrong, like a decline in sales, your portfolio could take a big hit.

It’s wise to diversify your stock portfolio by investing in multiple businesses across different industries and sectors. You can also diversify your portfolio by combining stocks with other types of investments, like bonds, ETFs or GICs.

Alternatives to stocks

High-interest savings accounts

One alternative to investing in stocks is putting your money in a high-interest savings account. This is considered a low-risk option because your money is protected and you can access it at short notice. However, the interest you earn may not keep pace with inflation during rough economic times.

Mutual funds

Mutual funds pool together money from lots of individual investors and are professionally managed by portfolio managers who decide which assets to buy or sell. They’re designed to help investors diversify their portfolios with stocks, bonds or other securities without having to manage individual investments.

Exchange-traded funds (ETFs)

ETFs also pool investors’ money together to buy a mix of assets, but they trade on stock exchanges like individual stocks. This means their prices fluctuate throughout the day based on market demand, making them more flexible to buy and sell.

Bonds

Bonds are like loans investors give to businesses or governments. Bonds pay interest for a fixed period of time, after which you receive your initial investment back plus the interest it has accrued.

Guaranteed Investment Certificates (GICs)

GICs are a low-risk investment option offered by banks and other financial institutions. When you buy a GIC, you agree to lock in a set amount of money for a fixed term, usually one to five years, in exchange for a guaranteed interest rate. When the term ends, you get back your original deposit plus the interest earned.

Bottom line

Buying stocks can be an exciting way to grow your wealth. You can pick which companies you want to invest in and possibly receive dividends. You may also be able to vote on important company decisions. Be prepared to spend time researching the companies you want to invest in, and remember to diversify your investments to help minimize the impact of short-term losses.

Frequently asked questions

• How much is a stock worth?

  Stocks in different companies will be worth different amounts, depending on the value of the company and how many stocks it has issued. This can change over time based on how the company performs.

• What are stocks?

  A stock is a small ownership interest in a company sold to help companies raise money for growth and development. Stockholders aren't typically involved in the day-to-day management of a business, but they might receive dividends and have voting rights in shareholder meetings.

• Do shareholders get paid?

  If you own stocks that pay dividends, then yes. But not all stocks pay dividends.

• What is equity in a company?

  Equity refers to how much of a company you own. If you own 200 stocks in a company that has issued 20,00 stocks in total, then you have a 1% equity stake in the company.

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Written by

Ceri Stanaway

Writer

Ceri Stanaway is a researcher, writer and editor with more than 15 years’ experience, including a long stint at independent publisher Which?. She’s helped people find the best products and services, and avoid the pitfalls, across topics ranging from broadband to insurance. Outside of work, you can often find her sampling the fares in local cafes. See full bio

Co-written by

Rebecca Low

Writer

Rebecca Low is a writer for Finder. She has contributed to a range of digital publications, including income.ca, Indeed, and Expatden, writing on topics like personal finance, career development, and travel. See full bio