Imagine your friend has a lemonade stand. They need help buying more lemons, so you give them some of your allowance. In return, you own a tiny piece of their lemonade stand. When the stand makes money, you get some too.
That’s basically what a stock is. When you buy a stock, you’re buying a tiny piece of a company. If the company does well, your piece becomes worth more. If it does poorly, your piece becomes worth less.
Why Do Companies Sell Stocks?
Companies need money to grow. Instead of borrowing it all from a bank, they can sell little pieces of themselves to regular people like you and me. They get the money they need, and we get to own a piece of the company.
How Do You Make Money?
There are two main ways:
- The stock price goes up — If you bought your piece for $10 and it’s now worth $15, you made $5. This only counts when you sell it.
- Dividends — Some companies share their profits with stock owners. It’s like your friend giving you a cup of lemonade every week as a thank you.
Can You Lose Money?
Yes. If the company doesn’t do well, your piece becomes worth less than what you paid. That’s why investing in stocks always involves some risk. It’s important to never invest money you can’t afford to lose.
The Bottom Line
A stock is a tiny piece of a company. Buy it, and you’re a part-owner. The company does well, you do well. The company struggles, so does your investment.