To invest in companies you purchase shares of the company stock through the stock market system. Stock is an ownership portion in the company and stockholders have a claim on the assets and profits of the company. Stock investing is one path to accumulating and growing assets and wealth.
Investors usually purchase stock through a stockbroker. This can be a licensed registered representative working in a broker's office, or online using a discount electronic stockbroker. When an order is placed with a broker, the brokerage firm acts as an agent for the investor and uses the stock market system to purchase the stock for the investor. The stockbroker charges a commission for the purchase or sale of a stock.
Once the stock is purchased it will show as a holding in the investor's account. Most stock shares exist only in electronic form. The broker holds the shares in "street name" and the electronic shares are held electronically in the broker's computer system and credited to the investor's account. There is no stock certificate with the investor's name on it. Once the shares are credited to an investor's account, they will stay in the account until the investor sells the stock or transfers the shares to another broker or account.
The value of a stock will move up and down as the shares trade on the stock exchanges. The investor will own the same number of shares that he purchased, but the per-share value will change with the current market value of the shares. The desired outcome is to have the shares increase in value over the purchase price.
It is possible for the number of shares of stock an investor holds to change. If the company declares a stock split or stock dividend, the investor will accumulate additional shares. Over time, stock splits can significantly increase the number of shares the investor owns. For example, if an investor bought one share of Coca Cola before 1927 and kept the stock, that investor would own 4,609 shares today. To keep the time frame shorter, 100 shares of Coca Cola purchased in 1965 would now be 2,400 shares due to stock splits.
Many companies also declare dividends, which are a portion of profits paid to stockholders. Any dividend earned by the stock in an investor's account would be credited to the account as cash. Our long-term investor with her 2,400 shares of Coca Cola stock would have earned $3,936 in dividends from Coca Cola in 2009.