What Is a Stock? Your Guide to Business Equity and Portfolios

When most people think about turning a profit from a business, they assume it comes from traditional ownership, where you’re the boss and oversee the entire operation.

But that’s not the only way you can make money from a company. In fact, you can own a piece of multiple companies at once, without any of the day-to-day responsibilities of supervision, while making some money from their profits. And it’s done with stocks.

Owning stock means you’re entitled to an equivalent portion of the company’s assets or profits based on how much stock you hold, particularly if you own multiple units of stock, known as shares. 

Businesses allow individuals to buy stock in their company in an effort to raise funds that can be used for ongoing operations. People typically buy stock in the hope that their investment increases in value as the company becomes more profitable. The stock can then be sold to another investor for a higher price.

Most investors don’t hold stock in a single company. They invest their money in several companies at once using investment portfolio management software to build, track, and manage their financial assets. Although other types of investment may make up a complete portfolio, stocks and shares usually form the foundation for both new and experienced investors.

What are the different types of stocks?

Stocks can be categorized in more ways than one. While the most basic distinction is between common and preferred shares, investors also group stocks by company size, growth potential, income profile, or even geography. Understanding these types helps build a well-balanced investment strategy.

• Common stock is the most common stock available to the public. Stockholders can receive dividends, or income, from the profits generated by the company. They may also be entitled to vote at shareholder meetings, with their voting power proportional to the number of shares they own in the business. In other words, more shares mean more influence in voting. This type of investment is characterized by high risk and high reward.
• Preferred stock doesn’t give shareholders any voting rights, but owners do receive priority on dividends before common stock shareholders in the event the company goes bankrupt or is liquidated. They also receive fixed dividends, or a set amount of income, from this stock every year. This means preferred stock owners forego potentially larger amounts of income for the promise of stability.
• Large-cap stocks are shares of companies valued at $10 billion or more. These companies are stable and financially strong, often operating worldwide. Although their growth may be slower, they are considered dependable and are frequently part of major indices such as the S&P 500.
• Mid-cap stocks are issued by companies valued between $2 billion and $10 billion, occupying a middle ground that balances stability and growth. These companies are often still in expansion, providing greater potential for gains than large-cap stocks, while carrying moderate risk.
• Small-cap stocks belong to companies valued under $2 billion. Small-cap firms may be in early stages of growth and offer strong return potential,  but they’re also more volatile and vulnerable to market downturns. Diversification is key when investing in this category.
• Growth stocks are companies anticipated to expand more quickly than the market average. They typically reinvest profits rather than distribute dividends, with the goal of boosting share value over time. Although they present significant growth potential, they may also be overvalued and pose greater risks.
• Value stocks are priced lower than what analysts estimate their worth to be. They are typically established companies with strong fundamentals but experiencing temporarily low prices. Investors purchase these stocks with the expectation that the market will eventually correct itself and increase their value over time.
• Dividend stocks provide shareholders with a share of the company's profits, usually paid quarterly. These stocks are commonly issued by financially solid companies and attract investors seeking consistent income as a key part of their investment approach.
• Foreign stocks are shares issued by companies located outside the investor’s home country. They provide opportunities for global diversification and access to emerging markets, but also carry risks such as currency fluctuations, political instability, and unfamiliar regulations.

What’s the difference between stocks and bonds?

While both stocks and bonds are common investment tools, they work in fundamentally different ways and serve different purposes in a portfolio. Understanding how they compare can help you develop a strategy that strikes a balance between growth and stability.

With stocks, you’re purchasing a piece of a business and becoming a shareholder. This equity can be bought and sold, and grow or shrink in value over time. Stock gives you a claim on future profits, and in some cases, voting rights in company decisions. They have the potential for high returns, especially if the company experiences growth over time, but they also come with inherent volatility. 

Bonds don’t provide any equity or ownership in a company. Instead, individuals who buy bonds are providing loans that the company pays interest on for a set amount of time. At the end of this period, the total amount that the bond was purchased goes back to the bond owner. These aren’t as risky as stocks, but they do come with their own risks. For instance, if the business goes bankrupt before the bond is repaid, the interest payments stop, and the bond owner may not receive their original investment back.

Holding a bond for the lifetime of the loan, known as “holding until maturity,” can provide a predictable source of income for the bond owner if the company continues to make payments. As bond payments are seen as a source of income, these funds are taxed differently from other types of investments, usually falling under traditional income tax requirements.

How do stocks fit into an investment portfolio?

Companies that want to sell stock typically go public through an initial public offering (IPO), which allows investors to make their first stock purchases via a stock exchange, such as NASDAQ or the New York Stock Exchange (NYSE).

To purchase stock, investors can go directly to a company or work with a broker or financial advisor. If the buyer already has stock at the company, they can reinvest dividends from existing shares to buy additional stock. 

The value of a stock fluctuates based on supply and demand, as well as broader economic market conditions and other factors. If a business turns a profit, its stock value increases and rises at a higher rate than its original price point. If the company loses value or goes out of business completely, stock value plummets, and investors may lose some or all of their initial investment. Most investors maintain a diversified portfolio to mitigate the risks associated with this type of investment.

Since it’s possible to make or lose a significant amount of money through buying and selling stock, this trade is subject to strict government regulations to protect investors from fraud.

What are the risks of investing in stocks?

While investing in stocks can grow your wealth over time, it’s not without risk. Understanding the risks and how to manage them is essential for any investor, especially beginners.

• Market volatility: Stock prices fluctuate based on supply and demand, company performance, economic conditions, and investor sentiment. In volatile markets, values can drop suddenly, even if the company hasn’t changed. Volatility is part of investing, but it can be unsettling for first-time investors.
• Capital loss: Unlike savings accounts or bonds, stocks don’t guarantee a return. If a company underperforms or goes bankrupt, your investment could lose value or become worthless. This is why diversification is key: spreading your money across different sectors, industries, or asset types helps reduce the impact of any single stock's decline.
• Liquidity risk: While most public stocks can be bought or sold easily, some low-volume stocks or foreign securities may be harder to trade quickly. If you need to sell under pressure, you might have to accept a lower price than expected.
• Emotional decision-making: Investors are human, and fear or excitement can lead to rash decisions. Panic selling during a downturn or chasing “hot stocks” without research can hurt long-term returns. Having a plan and sticking to it helps mitigate emotional risk.
• Inflation risk: If your portfolio doesn’t grow faster than inflation, the real value of your money shrinks over time. Stocks are generally seen as a good hedge against inflation, but only if they’re part of a well-balanced, long-term strategy.

What is the best investment portfolio management software?

If you want to start buying stocks, you have to have a reliable way to track and manage your investments, especially if you’re working with multiple companies. G2 helps you find the top investment portfolio management software that provides a comprehensive view of all associated activities.

To be included in the investment portfolio management software category, platforms must:

• Manage various types of investments such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs)
• Provide features to buy and sell financial instruments and manage cash dividends 
• Handle investment records management 
• Aggregate financial information from third-party market data sources 
• Provide detailed reporting tools, like tax schedules or projected cash flow 
• Contain a client portal for placing orders and transferring funds 
• Offer tools to conduct investment portfolio analysis

* Below are the top five leading investment portfolio management software solutions from G2’s Fall 2025 Grid Report. Some reviews may be edited for clarity.

1. Morningstar Direct

Morningstar Direct helps investors research markets, position products, analyze competition, and share insights. With portfolio analysis and construction features, new investors can start from scratch, while Morningstar’s ongoing due diligence and asset allocation make managing investments simple.

What G2 users like best:

“Morningstar Direct is a powerhouse when it comes to data. It's got a ton of features and access to a crazy amount of information on all sorts of investments like mutual funds, stocks, and ETFs. If you're in the investment industry, this platform can be a real lifesaver.”

- Morningstar Direct review, James M.

What G2 users dislike:

“There can be considerable lag at times when working through Presentation Studio. They have suggested it is a connection issue, as their version runs quickly in-house, but I have found it to run slower. You are at their whim regarding features; we use a couple of reports consistently, and their support has slowly been waning.”

- Morningstar Direct review, Ross S.

2. Morningstar Direct Advisory Suite

Morningstar Direct Advisory Suite is built for financial advisors who need robust research, proposal generation, and client communication tools in one place. It streamlines portfolio analysis, investment comparisons, and performance reporting, helping advisors offer more personalized and data-driven guidance to their clients.

What G2 users like best:

“I help to build investments to our recordkeeping platform. Morningstar is an extremely helpful tool when I need to research details about an investment and its availability. I use Morningstar almost daily. We had a meeting with the Morningstar team a few months ago to discuss product enhancements based on our suggestions, and they were very receptive to our feedback. The product has been very user-friendly and easy to use.”

- Morningstar Direct Advisory Suite review, Chloe G.

What G2 users dislike:

“The biggest drawback of Morningstar Direct Advisory Suite is that it can feel clunky and slow to navigate at times, especially when pulling detailed reports or switching between tools. The user interface isn’t very intuitive, so it takes some getting used to, and even after that, simple tasks can feel more complicated than they should. Report customization is powerful, but sometimes too rigid — you can’t always tailor the output exactly how you’d like. Finally, the cost is on the higher side, which can be hard to justify if you’re not making full use of all the features.”

- Morningstar Direct Advisory Suite review, Michael W.

3. Koyfin

Koyfin offers professional-grade market data and visualization tools at a competitive cost. Investors and analysts can access real-time stock screeners, macroeconomic dashboards, earnings calendars, and customizable charting.

What G2 users like best:

“I really appreciate Koyfin's grasp functionality and find it easy to use. Having used YCharts before, I found Koyfin much simpler and less overwhelming. The support team is phenomenal, being very responsive to my needs. I also value Koyfin's commitment to actively making feature updates, which shows their eagerness to develop and improve the platform. This forward-thinking approach, though the company is newer compared to some longstanding competitors, was a significant reason I opted for their service. Furthermore, the initial setup was super easy, and while learning all the tool's capabilities will be an ongoing journey, getting started with Koyfin was straightforward.”

- Koyfin review, Brandon H.

What G2 users dislike:

“As much as I love the look of Koyfin, sometimes there is just to much information displayed for me to quickly find exactly what I am looking for.”

- Koyfin review, Dace D.

4. Betterment at Work

Betterment at Work combines personalized retirement planning, low-fee investment portfolios, and financial education resources, empowering employees to take control of their long-term financial goals through a guided digital platform.

What G2 users like best:

“Betterment at Work has surpassed my expectations. I was searching for a platform that provided fair value to both the company and its employees, and this solution delivers on that. I especially value how smoothly it integrates with our payroll system, making administrative management for HR both minimal and highly efficient. Our employees also really like the user interface, which makes it easy to set personalized financial goals. Its comprehensive approach extends beyond the standard 401(k) plan, offering a more complete sense of financial well-being.”

- Betterment at Work review, Rae S.

What G2 users dislike:

“In the administrative dashboard, there is poor filtering with which to segment the engagement data according to department and tenure of the employee. It becomes difficult to recognise particular support requirements. We would also like the ability to stream specific financial wellness messages to specific groups of employees directly in the platform. Impersonal messages come out poorly. The lack of an HR internal messaging system so that HR can influence the employee to do something like review annual statements involves introducing email campaigns.”

- Betterment at Work review, Rita H.

5. Betterment Advisor Solutions

Betterment for Advisors provides a turnkey digital investing platform that enables RIAs and financial planners to automate portfolio management while delivering a modern client experience. With features such as tax-efficient investing, streamlined onboarding workflows, and white-labeled interfaces, it enables advisors to scale their practice without compromising personalization.

What G2 users like best:

“I enjoy that I can send our new clients a link to start opening their account(s). This way, they can input their information. I like being able to send onboarding reminders through the platform. Tax harvesting and allocation changes are made easy as well.”

- Betterment Advisor Solutions review, Shawna H.

What G2 users dislike:

“Few things. They can't custody non-residents of the USA. If someone has a lot of stock options, it's not the best for them. They compete with RIA's which is sometimes a conflict of interest.”

- Betterment Advisor Solutions review, Tunc T.

Frequently asked questions about stocks

Got more questions? We have the answers.

Q1. Is now a good time to start investing in stocks?

There’s rarely a perfect moment. The best approach is to invest consistently over time rather than trying to time the market. Starting early gives your investments more time to grow and mature.

Q2. Do I need a lot of money to start investing in stocks?

Not at all. Many platforms now allow you to start with just a few dollars, and some even offer fractional shares, so you can invest in companies without buying a full share.

Q3. What’s the difference between a stock and a mutual fund?

A stock gives you ownership in one company. A mutual fund pools money from many investors to buy a diversified mix of stocks, bonds, or other assets, and is managed by a professional fund manager.

Q4. Can I invest in stocks without a financial advisor?

Yes. Many beginners use online brokerages or robo-advisors to start investing without needing a dedicated financial advisor. However, advisors can add value for complex strategies or long-term planning.

Q5. Are there taxes on stock investments?

Yes. You may owe taxes on dividends and on any profits from selling a stock (capital gains). The amount depends on how long you held the stock and your country’s tax rules.

Take a stroll down Wall Street

Investing in stocks remains one of the most accessible and proven ways to build long-term wealth. Whether you’re buying shares in a single company, diversifying through ETFs, or managing a full portfolio, the key is starting with a clear strategy and realistic expectations.

Yes, stocks carry risk, but with the right mix of education, tools, and consistency, they also offer real potential for growth. You don’t need to be an expert to begin, just informed and intentional.

Find investment firms to guide you and your business with your monetary investments.

This article was originally published in 2021. It has been updated with new information.