Investing in stocks lets you own part of a company. If you choose wisely and stick with your plan, over time the value of your shares should rise. Whether you’re saving for retirement or looking to generate income, investing in the stock market can be an excellent way to grow your money.
The stock market is a network of marketplaces that brings together people who want to sell investments and those who want to buy them. Public companies issue stock to raise capital and share profits with investors. The market pairs these sellers with buyers at transparent prices, using computer-operated exchanges and other trading systems that provide information about the company and its current price. Investors can trade stocks individually or in groups, such as through mutual funds and exchange-traded funds. Other participants include banks, brokerage firms and robo-advisors that automate investment for individuals.
A stock’s price changes based on demand and supply. Demand comes from new investors who may want to purchase shares and supply from existing shareholders who may wish to sell them. Investors can profit from owning stocks in two ways: through regular dividend payments and through capital appreciation (when the value of the shares rises).
When you hear about how the stock market is doing, the media often refers to an index like the Dow Jones Industrial Average or the S&P 500. These are indexes that track the collective price movements of a select group of large and important companies’ stock. For most long-term investors, these indexes are the best gauge of how the market is doing.
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