When you buy stocks, what are you actually purchasing?

When you buy stocks, you are purchasing a portion of a company. This essentially means that you are acquiring ownership in that company, represented by shares of stock. Each share signifies your stake in the company's assets and earnings. As a shareholder, you have the potential to benefit from the company's growth and profitability through capital gains (as the price of the stock increases) and dividends (a share of the company’s profits distributed to shareholders).

The stocks represent ownership interest, which is a fundamental characteristic of how stock markets operate. Owning stock allows you to vote on certain corporate matters and to influence decisions made at shareholder meetings, depending on the type of shares you own. This ownership relationship is distinct from the nature of bonds, loans, or mutual funds, which involve different financial instruments and structures. For instance, bonds represent debt, while mutual funds pool investment from many individuals to invest in a diversified portfolio of stocks and other securities.