Unless you live under a rock, you have probably heard that you should be investing in the stock market. I bet if you asked a bunch of your friends to explain what a stock is most of them could not give you an articulate answer.
A stock is a piece (also called a share) of ownership in a company. You can buy piece, or multiple pieces. If the price of the stock goes up, so does the value in your account, and subsequently, your return on investment (ROI).
Don’t zone out on me yet. This information may seem boring, or maybe you already know it (snaps to you), but it is important. A lot of people throw money into stocks- looking at you 401k investors- without having an understanding of what they are putting their hard earned money into.
To be able to purchase a stock it must be sold on an exchange, or a giant marketplace. There are different exchanges and markets you can buy stocks on. Also important to understand is that while the stock market does affect the economy, it is not the economy.
You’ve probably seen people on tv ramble on about how the stock market is going up or down. The “market” they are talking about is usually either the Dow Jones Industrial Average i.e. “The Dow”, or the S&P 500. The S&P 500 tracks the largest 500 companies listed on stock exchanges in the US.
If you are investing your own money, you will be using a brokerage to buy stock. This is the middle man between you and the exchange. The companies listed on exchanges have chosen to go public- which is them offering shares of their company in exchange for money- for a variety of reasons. Once a company goes public, the price of the stock is based off supply and demand.
At this point you may be wondering why you would want to own a piece of a company and I will address that in another post. Right now, try to familiarize yourself with these exchanges, even if that just means pulling up the chart and looking at the S&P daily so you start to get a feel for the information that is shared. Yahoo finance is a great free tool to start.