Stocks vs. shares: Explaining the differences

Stocks and shares are fundamental concepts in investing, often used interchangeably but with distinct meanings. Both represent partial ownership in a company, but shares refer to the individual units of that ownership. One share equals one unit of stock.

Let’s take a closer look at how stocks and shares function, how they’re connected and why understanding the difference matters for investors.

Defining stocks and shares

It’s investing 101 to understand the difference between stocks and shares.

A useful analogy to understand what differentiates these two terms may be looking at money versus dollars. Money is the general concept of what you use to buy things, while dollars are specific units that measure how much money you have. Similarly, stock represents ownership in a company, and shares are the units that measure how much stock you own.

Differences between stocks and shares

Let’s take a closer look at how stocks and shares function and clarify the nuances.

Value

The total value of the stock you own in a company is the sum of all your shares in that company. Each share has the same value, determined by the company’s perceived worth in the market. For example, if you own 100 shares of a company’s stock, each share is worth the same as the others.

However, if you own shares in multiple companies, their values will differ based on each company’s stock price. This means owning more shares in one company doesn’t necessarily make your investment more valuable than owning fewer shares in another. If one company’s shares are significantly more expensive than another’s, your total stock value in that company may be higher, even if you own fewer shares.

Transferability

Both stocks and shares can be transferred, but the difference lies in how ownership is exchanged. When investors talk about buying or selling stock in a company, they’re actually trading shares, which are the individual units of stock ownership.

Shares can be bought, sold or transferred between individuals or through stock exchanges. This is how stock ownership changes hands in the market. While people may casually say they are transferring "stock," what’s really happening is the transfer of specific shares in a company.

Types of stocks

Stocks often get bucketed into various categories by investors and analysts. These classifications are not official designations regulated by any governing body or exchange. Rather they are industry terms that investors and analysts use to categorize stocks based on certain characteristics and performance patterns.

Let’s explore some of the different types of stocks you can purchase, each offering unique benefits, risks and potential returns.

Types of shares

Shares are the units of ownership within a company’s stock. They’re categorized based on the type of security they represent and the level of ownership in the company that they represent. The two most common types are common shares and preferred shares.

Common shares

Common shares are the most widely held type of shares among investors. Owning common shares typically grants shareholders voting rights, allowing them to participate in key company decisions, such as electing board members. Common shareholders may also receive dividends, though these payments aren’t guaranteed and depend on the company’s profitability and dividend policy.

The more common shares an investor owns, the greater their voting power and potential financial stake in the company’s success they have. However, common shareholders are last in line to receive assets if a company goes bankrupt, making these shares riskier than preferred shares in terms of financial protection.

Preferred shares

Preferred shares, also known as preferred stock, are a less common type of equity that combines features of both stocks and bonds. They’re generally considered more secure than common shares because preferred shareholders have priority when it comes to receiving dividends and recovering funds if the company goes bankrupt or its assets are liquidated. Unlike common shareholders, these shareholders typically don’t have voting rights, meaning they have little say in company decisions.

One key advantage of preferred shares is they usually pay fixed dividends, making them appealing to investors seeking steady income. However, they may offer less potential for price growth compared to common shares, as they don’t benefit as much from increases in a company's value. Because of their stability, preferred shares may be favored by income-focused investors rather than those looking for high-growth opportunities.

Other share types

Within the categories of common and preferred shares, there may be different classifications.

Indirect ownership of stocks and shares

According to a study from the Pew Research Center, only 21% of American families own shares in companies directly. This means they don’t personally purchase and hold individual shares in a brokerage account. Instead, most investors own shares of stock indirectly, primarily through mutual funds, exchange-traded funds and pension funds.

In these cases, individuals don’t own specific stocks in their name. Instead, they own shares of a fund that holds stock in multiple companies. Because the fund itself is the legal shareholder, it is the fund managers – not individual investors – who exercise voting rights in corporate decisions.

The bottom line

Understanding the difference between stocks and shares may help you make informed investment decisions. Knowing how stocks perform and how share prices change will help you track your portfolio’s growth, risk exposure and overall performance, even if you don’t own shares directly.

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