Investing in stocks can bring a steady stream of income. But it can also carry risk. It’s important to diversify your portfolio and understand the risks of each stock you own.
The stock market is the collection of physical and electronic markets where shares of publicly traded companies are bought and sold. Shares represent partial ownership of a company, and each share has a price that changes as investors demand or supply more. The prices of stocks are based on the market’s expectations of how well a business will perform in the future.
Private companies sometimes issue stock to raise funds for expansion. Investors buy the stock in hopes the company will grow and their investment will increase. The company then pays dividends to shareholders, and their investment may rise or fall in value depending on the health of the company’s financial performance.
Over the long-term, investors make money by investing in companies that will continue to increase sales and profits. This results in higher stock prices, and the stock market is a great way to gauge the strength of different sectors of the economy.
Investors can trade individual stocks on the stock market, or they can choose to buy mutual or exchange-traded funds (ETFs). The ETFs provide broad exposure to a large number of stocks and can help smooth out volatility.
Today, the stock market is conducted primarily on computers operating at lightning speeds, matching many investors who want to buy stocks at a given price with others willing to sell them at that price. Even seasoned investors struggle to select the right stocks, but experts recommend choosing blue chips—shares of stable, established companies that have proven track records.
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