What is the difference between Stocks and Shares?
Updated: May 19
If you’re new to the world of investing, one of the first things you might wonder is what is the difference between stocks and shares. Basically, these two terms refer to different ways in which companies can issue ownership interest in their company; they’re just two types of equity investments, or investments in the ownership of a company or another entity such as real estate, that investors can make.
However, there are several notable differences between stocks and shares that will help you decide which one might be better suited to your investment goals and personal preferences.
In short, there is very little difference between stocks and shares, they are two different words that are often used in place of each other or together to describe the same thing, i.e. equity ownership.
What are Stocks?
Stocks are equity ownership in a company. When you buy a share of stock, you own a very small piece of that company. In return for your investment, you become a part owner and have certain rights (or privileges) as an owner.
These rights include voting for key decisions, receiving dividends from profits, or selling your stock if you need to cash out of your investment.
The price of each share fluctuates daily based on supply-and-demand factors in financial markets (including international markets), which make it difficult to predict if your stock will be worth more or less when it comes time to sell it back at some point in the future.
What are Shares?
Shares are also a proportional part of ownership in a business. Generally, when someone invests in or purchases shares of a company, they own a tiny sliver of that company.
When you buy 100 shares of ExxonMobil for $100 per share, for example, you own 0.000001% of ExxonMobil’s worth – approximately $2 billion based on a valuation near $300 billion.
As an investor, your value depends on two factors: how much money is left over after all expenses are paid and how much money investors who come after you are willing to pay to acquire your ownership stake.
Different Types of Shares
There are two primary types of stock. Common stock offers you a percentage of ownership in a company, but it doesn’t offer voting rights—and earnings that come out of an S-corporation are considered personal income rather than corporate profits. Preferred stock, on the other hand, has a number of benefits.
Your dividend usually gets priority when it comes to getting paid; in addition, preferred shareholders don’t have voting rights.
But unlike common stockholders, if your company goes bankrupt, preferred shareholders get their money back before common shareholders do.
Since these differences can make a big impact on whether or not an investment is profitable for you, consider consulting with your CPA about how best to manage these risks.
How to Buy Stocks & Shares
If you want to buy stocks or shares (also known as equities), you must open a brokerage account. This means setting up an online account with a broker like Fidelity, Schwab, or Vanguard—or talking to a real person at your bank or discount brokerage.
When to Sell Stocks
Whether you’re a new investor or one who has been in it for years, there are a few universal rules to help guide you through smart selling.
First, if it’s a stock (or mutual fund), always consider your goals and time horizon when determining whether to sell.
If you bought company ABC as part of your retirement investment strategy, take into account how much time you have until retirement—and factor that with how much money (and growth potential) do you want to see from ABC stock by then.
The same goes for companies in which you’ve made major investments with an income-generating goal; check how far away that milestone is before deciding whether to sell.
What is the difference between Stocks and Shares - The Bottom Line
Both stockholders and shareholders are owners of a company. They both hold equity in a company, although there are some differences in how they go about it.
Shares refer to single units of stock, while stock refers to multiple units of ownership or shares.
The reason that they’re sometimes used interchangeably lies in their origins. Stocks first referred to individual pieces of paper representing an interest in a company, which could be traded freely as share certificates on a secondary market.
Nowadays, stockholder has become more commonly associated with large companies where every single share isn’t traded on its own because it’s prohibitively expensive for small investors who don’t own enough shares.