Investing 101: Understanding How Stocks Work


Stocks are one of the best ways to build wealth. But, like any investment, they come with risks and rewards, so it’s important to consider your objectives and plan carefully before buying shares.

Understanding How Stocks Work

The stock market works through a network of exchanges, such as the New York Stock Exchange or NASDAQ. Companies list their shares on these exchanges so that they can raise money to grow and expand. Investors purchase these shares and then trade them among themselves. This means that the price you pay for a share of stock may change from day to day.

It’s also worth noting that the value of a stock depends on a variety of factors, including its fundamentals and demand. If more people want a particular stock than are willing to buy it, the price of that share will increase. Conversely, if more people are selling it than are buying it, the price will decrease.

There are three main types of stocks: growth, income and value. Some investors focus on each category separately, while others combine them to create a more diversified portfolio.

Growth stocks are generally stocks of companies that are growing rapidly. These are good investments for people who like the idea of seeing their money grow over time, but they often come with higher risk than other types of stocks.

Income stocks, on the other hand, are usually those that have been around for a long time and offer regular dividends. These stocks tend to be cheaper than growth stocks, and they may also have a lower price-to-earnings ratio.

Blue-chip stocks are shares in companies that have an excellent reputation and a history of performing well. They also usually pay dividends to their shareholders, which can be a good way to earn extra money.

Some of the biggest companies on the planet, such as Apple (AAPL -0.91%) and Costco (COST +1.26%), are examples of blue-chip stocks. They have a strong brand and a track record of doing well, and they often pay their shareholders dividends.

Aside from these companies, there are many other kinds of stocks, as well. For example, some stocks are traded on the floor of a stock exchange or on a broker’s website, while other kinds of stocks are primarily traded on a secondary market.

When a company goes public, it issues new shares of stock that are available to the public to purchase. These shares can be purchased through an online broker, an exchange or directly from the company itself.

The stock market is a complicated place, and it can be difficult to decide which stocks to invest in. That’s why it’s a good idea to use the services of a financial advisor to help you sort through all of your options.

Having an expert on your side can make a huge difference in the success of your stock portfolio. They’ll be able to help you navigate everything from market volatility and inflation to your retirement goals.

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