The Stock Market for Beginners

The stock market is a concept that many struggle to understand but there is ways to help navigate it.


Wealth and Finance International

The stock market is a concept that many struggle to understand but there is ways to help navigate it.

The stock market can be very complex and intimidating for most people. There can be a lot of numbers, math, percentages and fancy words used when talking about the market. Starting with the basics a stock is defined as all shares of a publicly traded company which then is divided into ownership. After a share of a stock is bought, that person now owns a sliver of the company. Now this is a very very small portion while some companies such as Apple have almost 100 million shares.

 When you first open any finance website or app you will most likely see 3 main market indexes, the S&P 500, The Dow Jones Industrial Average, and the Nasdaq. These represent how the economy is doing as a whole. The S&P 500 tracks the 500 largest publicly traded companies (not all companies are public). This Index covers many sectors including technology automotive, healthcare, utilities etc. The Dow Jones commonly referred to as the Dow. is composed of 30 companies which rarely change depending on how the business is performing. Finally the Nasdaq, the Nasdaq is a combination of over 3,700 companies most of which are technology. Investors will refer to these when talking about the general state of the economy and are a good reference to how businesses are doing. Note you can not buy into these indexes and the number next to them is not the price. They are simply referred to as points- for example, “The Dow is up 200 points this afternoon”. Although you can not buy these indexes you can buy an exchange traded fund or ETF. These ETFs track its respected market. For example I have shares of the Vanguard 500 index fund which tracks the S&P 500.

Famous stock market crashes. (Chloe Oppelt)

Now we see prices change every day, even every minute the price of a share goes up and down, why is this? While there are many factors that influence the price, one of the main reasons is supply and demand. If more people want to buy a share then demand goes up driving the price up. On the other hand if people sell, then demand is down dropping the price. Other factors include things such as  scandals, management changes, employee layoffs and the release of a new product are all factors that play into the price of a share. A publicly traded company is required to release their earrings every quarter or once every three months. new releases on earnings, profits, and future estimated earnings also affect the price.

When people have the idea to start investing many get on their phone and download apps such as RobinHood. These apps have poor security and limited trading options. In the case you are 18 or older you’re able to open a brokerage account with firms such as Charsels Schawb and Fidelity. Meeting with a broker and discussing your financial goals can give you direction and confidence in your investments. If you happen to be younger than 18 you will need to open a custodial account. A custodial account is in a child’s name but managed by an adult. This means when the child turns 18 they will get custody of the investments. When you are ready to make your first investment it is important to remember to build a diverse portfolio. This means you spread your investments across different industries in the market. For example, it’s not a good idea to be invested only in automotive, or only technology, because if that market happens to crash then you will lose a lot of money and is just not a wise idea. It’s a good roll of thumb to have no more than 25% in one industry.

In conclusion, investing is a great idea to save, and make money at the same time. Mutual funds and government bonds are the safest investments to start out with. Once you get more experienced and learn about investing and how the market works you can start investing into individual companies and make some more risky purchases.

Don't miss our latest posts!

Subscribe to our mailing list to keep up to date with the Live Wire's newest content!