Stocks are interests in the issuing company. The stocks issued represent a portion of the company’s financing, aside from the amounts borrowed from financial institutions.
Stocks are riskier securities than Treasury bills or fixed-income securities. Certain stocks are “safer” than others because the issuing company has been established for several years, it has sustained earnings growth, it has paid dividends for a long time, etc.
It is possible to invest in smaller and less solid companies, but investors must ensure that the risk of losing their investments in the event of a bankruptcy is not too high for them. Stocks will never represent a 100% safe investment, but they may be appropriate for a great many investors because they are very liquid and offer a potentially higher return than safer securities.
It is important for you to determine your risk tolerance before purchasing stock. You may make a profit with this type of investment. If you sell the stock at a higher price six months after you bought it, you may realize a capital gain and receive dividends.
However, you may also lose. If you sell the stock at a lower price than you paid for it, you will suffer a capital loss.
So… you should carefully assess what you are prepared to lose before you consider your potential gains.