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What is a stock?

A stock is an investment that allows investors to purchase partial ownership in a company.

Stockholders are entitled to the profits, if any, generated by the company after employees, vendors, and lenders are paid. Because stockholders only get the profits left over after everyone else is paid, they shoulder more risk than bondholders, who get paid a fixed amount regardless of how well a company does––unless it goes bankrupt.

Companies usually pay out their profits to investors in the form of dividends, or they reinvest the money back into the business. Dividends provide shareholders with a cash payment, and reinvested earnings offer shareholders the chance to receive more profits from the underlying business in the future.