Function

• When you purchase a financial asset, you are actually buying shares in that asset. You buy those shares at the share price on that day. The lower the share price, the more shares you can purchase. This is why investors try to buy when share prices are low and sell when share prices rise. Share prices fluctuate up and down over time. The value of the shares will increase and decrease with those fluctuations even though you own the same number of shares.
  
  

Effects

• If you later buy more shares of the same financial asset at a different price, you wont be able to buy the same number of shares for the same amount of money. It is common to own shares in the same security that were purchased at different share prices on different days. It is important to keep track of how many shares were bought, the price and the date. The price you originally paid for a share is called the "cost basis." You must know this to determine the capital gain or loss on the security. Taxes are paid on gains and losses deducted. Different tax rates also apply to securities held more and less than one year.
  
  

Potential

• Sometimes shares in a company change. When a share price gets too high, a company will sometimes split the stock. For example, if there is a two for one split, they will give the investor twice as many shares and cut the share price in half. This is basically an accounting change. The investor did not make or lose money in the split. Sometimes companies will spin off a part of itself into another company. When this happens the investor gets a proportional number of shares in the new company while maintaining their interest in the old one.
  
  

Benefits

• Some shares pay a dividend. This is a cut of the profits paid to a shareholder for every share they own. The more shares of a dividend paying financial asset that are owned, the more a shareholder is paid. Dividends can be paid to investors in the form of a check or bank transfer. They can also be reinvested by purchasing more shares at the current price. Some financial assets do not pay dividends and grow in value only by increasing their share price. Still others, like money market funds, maintain a constant one dollar per share price and pay interest on shares. The interest is usually reinvested to buy more shares of the money market account at that one dollar share price.
  
  

Types

• A shareholder technically owns part of the financial asset they hold shares in. This may or may not entitle the shareholder to a say in how the financial asset is run. Some shares allow you to vote on the board of directors and company policy. This is often a completely different kind of share than a non voting share. The difference is sometimes designated by calling one type of share class "A" and another class "B."