Stock: owning a small piece of a company
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Key takeaways
A stock, also called equity, represents a proportional claim of ownership in a company.
Investors buy stocks for capital appreciation, dividend income, or both, and a stock’s price moves on company performance and broader market forces.
Common stock typically carries voting rights but no guaranteed dividend; preferred stock skips voting but usually pays a fixed, prioritized dividend.
Public companies file audited financial statements with the SEC, publicly available through EDGAR, giving investors a more substantive basis for research than price movement alone.
A foreign stock’s local-currency gain doesn’t automatically translate into an equally strong gain once converted to a home currency.
A stock represents ownership in a company. Here’s how stock ownership works, and what U.S. brokerage accounts and taxes mean for a first-time investor.
What is a stock?
According to Investor.gov(opens in new window), stocks are a type of security that gives stockholders a share of ownership in a company, and they’re also called equities. Owning a stock means owning a proportional claim on that company’s assets and, in most cases, a proportional vote in certain corporate decisions such as electing the board of directors.
How stocks work
Investor.gov notes that investors buy stocks for two main reasons: capital appreciation, when a stock’s price rises, and dividend payments, when a company distributes a portion of its earnings to shareholders. A stock’s price moves based on a combination of factors, including the company’s own performance and financial health, and broader forces the company doesn’t control, such as economic conditions, industry trends, or shifts in overall investor sentiment.
Stocks are generally categorized in a few overlapping ways. Growth stocks belong to companies whose earnings are increasing faster than the market average, typically reinvesting profits rather than paying dividends, and are purchased mainly in hope of price appreciation. Income stocks pay dividends consistently and are purchased primarily for that income stream. Value stocks trade at a relatively low price relative to their earnings, often because the broader market has temporarily lost enthusiasm for them, and are purchased by investors betting the market will eventually reassess that valuation upward. A single stock can fall into more than one of these categories depending on how it’s currently trading and behaving.
Common versus preferred stock
Most individual investors own common stock, which typically comes with voting rights and the potential for both price appreciation and dividend income, though dividends on common stock are never guaranteed and are only paid after any preferred shareholders receive their own dividend first. Preferred stock generally doesn’t carry voting rights but typically pays a fixed dividend, prioritized ahead of common stockholders, and preferred shareholders also have a higher claim on company assets than common shareholders if the company were to fail. This structure makes preferred stock behave somewhat more like a bond in practice, trading some of common stock’s growth potential for more predictable income and a higher claim priority.
How stocks are bought, sold, and regulated
Stocks in public companies are registered with the SEC, and public companies are generally required to file quarterly and annual reports, including audited financial statements, which are publicly available through the SEC’s EDGAR system. This transparency requirement exists specifically to give investors access to the information needed to make informed decisions, and reviewing a company’s actual filings, rather than relying solely on secondhand commentary, is one of the more reliable ways to research a specific stock before investing.
Stocks for immigrants investing for the first time
For someone new to the U.S. financial system, opening a brokerage account is often one of the more unfamiliar parts of building financial roots in a new country. According to Investor.gov(opens in new window), brokers are generally required to collect a customer’s name, address, date of birth, and a Social Security number or other taxpayer identification number to comply with federal identity verification rules, so having the right documentation ready in advance, including an ITIN if a Social Security number isn’t available, helps the account-opening process go smoothly.
Currency risk note
A stock traded on a foreign exchange, or a U.S. company with substantial international revenue, carries currency exposure that affects the actual return once measured in a home currency. A foreign stock that rises in price in its own local currency can still show a smaller gain, or even a loss, once converted to a home currency if that local currency weakened over the same period. This is a factual, measurable feature of holding foreign stocks, distinct from the company’s own business performance, and it’s worth understanding clearly before assuming a foreign stock’s local-currency return tells the complete story of what an investor would actually experience after converting back to a home currency.
What to understand before buying your first stock
Understand that stock ownership carries real risk of loss. A stock’s value can decline substantially, and unlike a bond, there’s no guaranteed repayment of the original investment.
Review a company’s actual financial filings, not just its stock price trend. Public company filings, available through the SEC’s EDGAR system, give a more substantive basis for evaluating a company than price movement alone.
Understand the tax treatment that applies to the specific situation. Dividend income and any gain from selling a stock are generally taxable, and the specific rules can vary depending on residency and citizenship status.
Consider diversification rather than concentrating in a single stock. Spreading investments across multiple companies, sectors, or through a fund reduces the impact if any single company performs poorly.
Stock splits and what they actually change
A stock split occurs when a company divides its existing shares into multiple new shares, such as a two-for-one split where each existing share becomes two, with the price per share adjusted proportionally so the total value of the holding doesn’t change immediately as a result of the split itself. Companies typically do this to make individual shares more affordable and accessible to a broader range of investors, particularly after a stock’s price has climbed to a level that some investors find prohibitively expensive for buying a full share. A reverse split works in the opposite direction, consolidating multiple shares into fewer, often used by a company whose share price has fallen low enough to raise concerns about meeting exchange listing requirements. Neither type of split changes the underlying value of the investment on its own, though the psychological and practical effects on trading and investor perception can be real, even if the fundamental math is a wash at the moment of the split itself.
Common questions about stocks
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Do I need to be a U.S. citizen to buy U.S. stocks?
Generally, no, though opening a brokerage account typically requires meeting the specific brokerage’s own identification and documentation requirements, which can vary. Confirming what a specific brokerage requires for a particular immigration status is worth doing directly before assuming eligibility either way.
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What happens to my stock if the company goes out of business?
Common stockholders are generally the last to be paid in a company’s liquidation, after creditors, bondholders, and preferred stockholders, meaning common stock can become worthless if a company fails and its remaining assets aren’t sufficient to cover everyone ahead of common shareholders in line.
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Is buying individual stocks riskier than a mutual fund?
Generally, yes, since a mutual fund spreads investment across many different securities, reducing the impact of any single company performing poorly, while an individual stock concentrates risk entirely in that one company’s specific performance and circumstances.
In Summary
A stock represents real, proportional ownership in a company, with both the growth potential and genuine risk that ownership implies, and understanding the mechanics behind price movement, dividends, and shareholder priority helps in evaluating any specific stock more accurately. For anyone holding or considering a foreign stock, factoring in currency movement alongside the company’s own performance gives a fuller, more honest picture of the likely return.
This publication is provided for general information purposes only and is not intended to cover all aspects of the topics discussed herein. This publication is not a substitute for seeking advice from an applicable specialist or professional. The content in this publication does not constitute legal, tax, or other professional advice from Remitly or any of its affiliates and should not be relied upon as such. While we strive to keep our posts up to date and accurate, we cannot represent, warrant, or otherwise guarantee that the content is accurate, complete, or up to date.