What are Shares or Stocks? Guide to Growing Your Wealth
Investing is often the thin line that separates those who work for money from those who have their money working for them. If you live in a developed economy, you likely hear terms like "Wall Street," "The S&P 500," or "Stock Markets" daily. But what are these things, really?
What is a Share?
At its simplest level, a share is a piece of paper (now mostly digital) that proves you own a tiny part of a company. Imagine a massive pizza. The company is the whole pizza, and the shares are the individual slices. When you buy a slice, you become a "shareholder."
When we talk about "Stocks," we are usually referring to the total ownership certificates of a company. If you say you own "stocks," you are saying you own shares in multiple companies.
Why do companies sell shares?
Companies need money to grow. They might want to build a new factory, develop a new AI technology, or expand into a new country. Instead of taking a massive loan from a bank and paying heavy interest, they "go public." They sell small pieces of the business to people like you. In exchange for your money, they give you a claim on their future success.
How Does Stock Ownership Work?
Ownership isn't just a status symbol. It comes with actual benefits. When the company makes a profit, you are entitled to a portion of that success.
Capital Gains: This is the most common way people make money. You buy a share at $100. The company does well, and two years later, people are willing to pay $150 for that same share. You sell it and pocket the $50 profit.
Dividends: Some established companies don't need to reinvest every penny of profit back into the business. Instead, they send a "thank you" check to their shareholders. This is called a dividend. It’s a way to earn passive income while still owning the stock.
How Does Employee stock ownership work
Employee Stock Ownership is a way for a company to give its workers a piece of the business. Instead of only receiving a monthly salary, employees get shares of the company’s stock. This usually happens through an Employee Stock Ownership Plan (ESOP).
The process is straightforward: the company sets up a special trust fund. They put shares of the company or cash to buy shares into this fund for the employees. You don't usually have to pay for these shares out of your own pocket. Over time, as you work for the company, you "vest" in these shares, which means you earn the right to own them fully.
If the company grows and becomes more profitable, the value of your shares goes up. When you retire or leave the company, the business often buys the shares back from you at the current market price, giving you a cash payout.
how does employee stock ownership plan work
- The Trust Fund: The company creates a special trust fund.
It then puts its own shares into this fund or contributes cash to buy existing shares for the employees. - Allocation: These shares are distributed to individual employee accounts.
Usually, the number of shares you get depends on your salary level or how many years you have worked at the company. - Vesting: You don't own the shares fully on day one.
You must stay with the company for a specific period (like 3 to 5 years) to "vest." Once vested, the shares are legally yours. - The Payout: When you retire or leave the company, the business is usually required to buy those shares back from you at the current market price.
Why It Matters
Because employees are also owners, they are more motivated to help the company succeed. If the company’s value doubles, the value of the employee’s retirement account also doubles. It is a "win-win" for both the boss and the worker.
The Risk Factor
It isn't all guaranteed profit. If a company performs poorly or the economy enters a recession, the value of your shares can go down. If you bought that share for $100 and it drops to $70, you have a "paper loss." You only lose the money if you choose to sell at that lower price.
Different Types of Stocks
Not all stocks are created equal. Depending on your financial goals, you might look at different categories:
1. Growth Stocks
These are companies expected to grow at a rate significantly above the average for the market. Think of tech giants or innovative biotech firms. They usually don't pay dividends because they prefer to reinvest all their earnings to get even bigger.
2. Value Stocks
These are "shares on sale." They are often established, dependable companies that are currently undervalued by the market. Investors buy these hoping the price will eventually reflect the company's true worth.
3. Blue-Chip Stocks
If you want safety, you look for Blue-Chips. These are industry leaders with a long history of stable earnings. They are the "aristocrats" of the stock market—think of the companies that provide your electricity, your phone service, or your daily coffee.
How to Start Investing in Today's Market
For someone living in a developed nation, the barrier to entry has never been lower. You no longer need to call a broker on a rotary phone.
Choose a Brokerage: Use a reputable app or platform. Ensure they are regulated by your national financial authority.
Research: Don't buy a stock just because a friend mentioned it. Look at the company’s "Earnings Reports." Look at what they sell and who their competitors are.
Diversify: This is the golden rule. Never put all your eggs in one basket. By owning shares in different industries (Tech, Healthcare, Energy), you protect yourself if one industry has a bad year.