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WHAT ARE STOCKS?

A stock represents a share in the ownership of a company, including a claim on the company's earnings and assets. As such, stockholders are partial owners of the company. When the value of the business rises or falls, so does the value of the stock. Stocks are generally bought and sold electronically through stock exchanges, the two primary ones in the United States being the New York Stock Exchange (NYSE) and the National Association of Securities Dealers (NASDAQ). While some companies sell

stock directly to investors, most only sell stock through a brokerage such as Schwab. Investors buy and sell stocks for a number of reasons including the potential to grow the value of their investment over time, to potentially profit from shorter-term stock price moves, or even to earn an income by investing in dividend-paying stocks. Keep in mind that the price of a stock can fall as easily as it can rise. Investing in stock offers no guarantee that you will make money, and many investors lose money instead.

HOW STOCKS FIT WITHIN AN OVERALL INVESTMENT PORTFOLIO.

Stocks are an important part of any portfolio because of their potential for growth and higher returns versus other investment products. In order to determine how much you should allocate to stocks, you should first develop a comprehensive financial plan that reflects your investment horizon and the level of risk you're willing to accept in exchange for the potential upside stocks can offer.

Asset classes perform differently, and it's nearly impossible to predict which asset class will perform best in a given year. If you had invested $100,000 in just U.S. Stocks in 1997, it would have almost quadrupled to $400,000 by 2017, but there would have been many ups and downs due to volatility. A more diversified investment portfolio would have had a lower return, but reduced volatility.

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TYPES OF STOCK

Learn about three main types of stocks.

Common

Common stock

A stock represents a share in the ownership of a company, including a claim on the company's earnings and assets. As such, stockholders are partial owners of the company. Fractional shares of stock also represent ownership of a company, but at a size smaller than a full share of common stock.

Preferred

Preferred stock

Preferred stocks (or preferred securities) are hybrid investments that share characteristics of both stocks and bonds. They can offer higher yields than many traditional fixed income investments, but they come with different risks.

ADRs

American Depositary Receipts

Many non-U.S. companies, that would otherwise be unavailable or inconvenient to trade, do trade in the U.S. markets as ADRs (receipts for shares of the foreign stock issued by U.S. banks). They are denominated in U.S. dollars and pay dividends in U.S. dollars.

WHY TRADE STOCKS?

Stocks let you own a piece of a company’s future. They’re available for a wide variety of industries—so you can tap into your knowledge of specific businesses, or help you to diversify your portfolio.

Growth potential
Income
Flexibility
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Fast facts

  • Stop and conditional orders may help protect your portfolio
  • The price-to-earning (P/E) ratio can help you identify value stocks
  • Compare earnings-per-share (EPS) between similar companies.
  • Market capitalization (market cap) is the dollar value of a company
  • Stock performance can fluctuate depending on market conditions
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