A stock represents partial ownership in a company. When you buy a share, you own a small slice of that business — its profits, its growth, and its risk.
Start InvestingStock returns come from two main sources. The first is capital appreciation — the share price increasing over time as the company grows revenue, expands margins, or captures more market share. The second is dividends — a direct cash payment some companies make to shareholders out of their profits, separate from any change in share price.
Not every stock pays a dividend. Fast-growing companies often reinvest all their profits back into the business rather than distributing cash, betting that reinvestment will drive a higher share price over time. Mature, stable companies are more likely to pay consistent dividends instead.
Market capitalization — share price multiplied by total shares outstanding — is one of the simplest ways to categorize a company's size and risk profile:
Companies are grouped into sectors — technology, healthcare, energy, financials, consumer goods, industrials, and more. Each sector reacts differently to economic conditions: rising interest rates might pressure growth-stage tech companies while benefiting financials, for example.
Holding stocks across multiple sectors, rather than concentrating in one, is a core principle of diversification. It doesn't eliminate risk, but it reduces the impact of any single company or industry underperforming.