Shares vs. Stocks

 

Shares vs. Stocks

The distinction between stocks and shares in the financial markets is blurry. Generally, in American English, both words are used interchangeably to refer to financial equities, specifically, securities that denote ownership in a public company. (In the good old days of paper transactions, these were called stock certificates). Nowadays, the difference between the two words has more to do with syntax and is derived from the context in which they are used.

KEY TAKEAWAYS

• For all intents and purposes, stocks and shares refer to the same thing.
• The minor distinction between stocks and shares is usually overlooked, and it has more to do with syntax than financial or legal accuracy.
• To invest in stocks or, more specifically, to invest in shares of a company's stock, you will need your own brokerage account.

Stocks

Let's confine ourselves to equities and the equity markets. Investment professionals often use the word stocks as synonymous with companies—publicly-traded companies, of course. They might refer to energy stocks, value stocks, large- or small-cap stocks, food-sector stocks, blue-chip stocks, and so on. In each case, these categories don't refer so much to the stocks themselves as to the corporations that issued them.

Financial pros also refer to common stock and preferred stock, but, actually, these aren't types of stock but types of shares.

Shares

A share is the single smallest denomination of a company's stock. So if you're divvying up stock and referring to specific characteristics, the proper word to use is shares.

Common and preferred refer to different classes of a company's stock. They carry different rights and privileges, and trade at different prices. Common shareholders are allowed to vote on company referenda and personnel, for example. Preferred shareholders do not possess voting rights, but on the other hand, they have priority in getting repaid if the company goes bankrupt. Both types of shares may pay dividends, but those in the preferred class are guaranteed to be paid first if a dividend is declared.