Most adults have some sort of investment in stocks, whether they realize it or not. For a lot of people with money in the stock market, they have no idea how it all works. The stock market, is actually a pretty simple thing to understand. To understand the stock market, you only need to understand the basics of business, and how investment money works.
When a company goes public, they have a stock offering. This is what is called an IPO, or, Initial Public Offering. They sell the stock to the public, to raise money for their business expansion plans. After a company has sold their shares, they are, for all purposes, on the open market. This means when you purchase a stock, you are actually buying it from another person, not the company itself.
There are multiple ways to buy stocks, depending on a few things. If you are investing for retirement via a 401k or 403b, you would invest differently than with a cash account. With a retirement account, the employer takes the money out for you, and then you can choose how to invest the money. With a cash account, you would contact your broker to buy the equities. The same holds true for IRA’s. One can purchase individual stocks, for example, Apple or IBM, or they can buy a mutual fund. A mutual fund is a basket of stocks that are chosen by a professional investor. The last option is to buy index funds, these track the major indexes such as the DOW or Nasdaq 100.
Having stock in a company is basically like owning a percentage of the company, albeit a small percentage. With stock ownership, you have voting privileges, which allow you to choose who you want on the board of directors. You are also entitled, in some cases, to a dividend. A dividend is paid out quarterly to shareholders of record. Usually a company that issues a dividend is a company that is doing well, and is much more established.
If you do not receive a dividend, you are hoping the price of the stock rises. A stock price will rise for a myriad of reasons. In the end, earnings drive the price of stocks. A company releases earnings every quarter, which are audited to make sure they are accurate. Over time, most stocks rise as the business becomes more profitable, it is up to each individual person to sell stock when they decide it is worth it to them.
The stock market is a great way to make money for the long term. Anyone who wants to save money for retirement years down the road needs to look into the stock market. When you invest in stocks, you are buying into a company and into an idea. If you trust corporations and the US economy you should look into buying stocks for your portfolio. The great thing about investing in stocks is the idea that you can get started with just a few hundred dollars.