Investment is essential to building wealth over time. When you have excess cash, you could simply stash it in a safety deposit box for safekeeping or put it into a savings account, but buying assets that that have the potential to increase in value can result in much larger gains. Many investors choose to buy shares of stock, which are small portions of ownership in companies.
The primary reason most investors buy stock is that shares of stock have the potential to appreciate over time. When you are shareholder you can offer your shares of stock for sale at any time. If your shares go up in value, you can sell them to make a profit. For instance, if you buy a stock at a price of $5 and its price increases to $6 after a year, you can sell it for a profit of $1. Profit from the sale of a single share of stock may be minimal, but if you buy hundreds or thousands of shares, profits can be significant.
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Dividends are periodic payments that some companies give to shareholders based on company profits. Dividend-paying stocks can provide a steady source of income for shareholders without requiring them to buy or sell shares, presenting an alternative to saving money in interest bearing accounts or buying bonds. However, not all companies pay dividends. Many choose to reinvest all profits back into their operations rather than distribute earnings.
Another advantage of being a shareholder is the ability to influence decisions in the company that issued the stock, which can potentially affect the value of your shares. For example, shareholders may have the right to vote on appointing the board members that run a company; and in some companies the shareholders themselves may sit on directive boards.
Companies that issue stock may grant shareholders a variety of other benefits. For example, a shareholder may be granted special discounts on products or services that the company offers. Specific shareholder benefits will vary from one company to the next.