Stocks, which are also called equities, are securities that give shareholders an ownership interest in a public company. It’s a real stake in the business, and if you own all the shares of the business, you control how the business operates. The stock market refers to the collection of stocks that can be bought and sold by the general public on a variety of different exchanges.
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Where does stock come from? Public companies issue stock so that they can fund their businesses. Investors who think the business will prosper in the future buy those stock issues. The shareholders get any dividends plus any appreciation in the price of the shares. They can also watch their investment shrink or disappear entirely if the company runs out of money.
The stock market is really a kind of aftermarket, where people who own shares in the company can sell them to investors who want to buy them. This trading takes place on a stock exchange, such as the New York Stock Exchange or the Nasdaq. In years past, traders used to go to a physical location — the exchange’s floor — to trade, but now virtually all trading takes place electronically.
When news people say, “the market was up today,” typically they are referring to the performance of the Standard & Poor’s 500 or the Dow Jones Industrial Average. The S&P 500 is made up of around 500 large publicly traded companies in the U.S, while the Dow includes 30 large companies. These track the performance of the collections of stock and show how they fared on that day of trading and over time.
However, even though people are referring to the Dow and the S&P 500 as “the market,” those are really indexes of stocks. These indexes represent some of the largest companies in the U.S., but they are not the total market, which includes thousands of publicly traded companies.
Of course, you’ll need a brokerage account before you start investing in stocks. As you’re getting started, here are eight more guidelines for investing in the stock market.
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