What are Stocks and Index Funds, ETFs, Mutual Funds?

Stocks, or shares, always have a strange vibe around them if you talk about them. People don’t understand them. They might joke a bit about it and then leave. Even when stocks and index funds are such powerful tools to become financially free.

Stocks are simply ownership certificates of a company. It’s simple. Let’s say that you start a company yourself. If you are the only owner, you own 100% of the shares in that company. Now let’s assume you start the same company with a business partner. You can decide to split the shares in your company 50/50, maybe 25/75, or any other combination really. 

The stocks of public companies are split into millions of little units or shares. That means that you can buy a very small piece of that company, by buying one share.

If you have your own company, you are fully responsible for all profit and losses made by the company. If you do well, you can extract a lot of cash out of the company in the form of dividends. The same principle applies if you own shares in a publicly traded company. You are entitled to the profit and loss of the small percentage of the company you actually own.

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