What is a stock?
A stock represents a share of ownership in a publicly-traded company. Once you purchase and own a company’s stock, you then become a shareholder and have ownership in that company’s profits. There are two ways a person can make money from investing in a company’s stock. First, you can make a profit by selling the stock at a higher price than you paid for it. The second way for a person to profit from a stock is through dividends. Dividends are a source of payment from the company to its shareholders to share the company’s profits. Every company does not pay dividends but if they do, the dividends are usually paid on a quarterly basis (four times per year). A company’s stock price per share fluctuates daily based on numerous factors affecting the supply and demand of the stock (Company news, public perception, company’s financial results, etc.).
What is the stock market?
When people talk about the “stock market,” they are usually referring to one or more stock exchanges in the United States. A stock exchange is simply a marketplace where financial assets are traded between buyers and sellers. The main stock exchanges in the U.S. are the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ). These two exchanges have thousands of publicly listed companies that are traded on their platforms. When news outlets or finance professionals talk about the stock market’s performance, they are likely referring to the S&P 500 (a stock market gauge using 500 publicly-traded companies).
What type of investments are in the stock market?
Even though the stock market is filled with thousands of individual stocks, this is not the only way people invest in the stock market. Below is a list of various methods to invest in the stock market.
- Passive mutual funds (Index Fund or ETF)
An investment fund that track a specific market index or measurement like the S&P 500. These funds are a way to invest in a variety of stocks compared to just one. Passive mutual funds are usually referred to as Index Funds or Exchange-Traded Funds (ETF). For more on this type of investment read the article Index Fund/ETF 101.
- Active Mutual funds
This type of mutual fund is similar to the passive funds with the investment being a collection of stocks but they are different in terms of stock selection. Active mutual funds have a fund manager that decides, after research, what stocks will be included in the fund. The stock selection often changes over time due to numerous factors.
- REITS
Real Estate Investment Trusts are a way for investors to invest in companies on the stock market that own, operate, or finance real estate.
- Bonds
Bonds are a type of investment where the investor loans money to borrowers and then receives that money back after a period of time with interest (fixed payment to the issuer for giving the loan). Bonds are accessible in the stock market usually through mutual funds or you can invest in individual bonds through a broker dealer.
- Commodities
Are a type of investment in an economic good like gold or oil. This type of investment is also accessible on the stock market through mutual funds, future contracts (an agreement to buy commodities at a certain price and date). You can buy the physical commodity itself.
The stock market is just one method for investing your money and allowing it grow. It is always important to reflect on your financial goals and determine what actions need to be taken (like investing) in order to achieve them!
Disclaimer: Thegrownwave.com is a personal finance blog, not a professional investment advisor. The content produced from the blog is provided for free and only for informational purposes. Thegrownwave.com does not and cannot promise the accuracy and reliability of any content in comparison to your individual circumstances.
Sources:
Chen, J. (2021, June 10). Stock Market. Investopedia. https://www.investopedia.com/terms/s/stockmarket.asp.
Voigt, K. (2021, March 17). Definition: What Is Stock? NerdWallet. https://www.nerdwallet.com/article/investing/what-is-a-stock.
Voigt, K. (2021, May 18). What are Bonds and How Do They Work? NerdWallet. https://www.nerdwallet.com/article/investing/what-is-a-bond.
The Grown Wave 