How do stocks work? That seems like a question that one should know before investing. However, with the billions of dollars invested in employer retirement plans, many people don’t have the answer to that question.
A stock represents a means for companies to raise capital outside of a regular revenue stream. When companies sell shares of stock, they sell a small piece of ownership for interested investors to buy.
Shares of stock are priced based on supply and demand. Companies have a finite number of shares, and any investor wanting to buy stock has to decide if the price justifies a purchase.