A stock represents a share in the ownership of a publicly traded company, including a claim on its earnings and assets. Stockholders are partial owners of the company, and if the value of the business rises or falls, so does the price of the stock. Public companies sell their stock through a market exchange, like the New York Stock Exchange or Nasdaq. Investors buy and sell stocks through a broker, whose trading platform connects to the exchange. Many investors these days use online brokers.
Stocks are an important part of an investment portfolio because they provide higher returns than other investments such as money market accounts and savings accounts. But before you dive into investing, develop a financial plan that reflects your investment goals and level of risk tolerance. And remember that stocks come with more volatility than other asset classes.
To make money from stocks, you have to buy them at a lower price than you sell them for. If you buy a share of Apple at $200 and sell it for $300, you’ll make $100 (minus any taxes you’d have to pay). Share prices are driven by supply and demand. If demand for a particular stock rises due to positive news, profit outlook, or investor enthusiasm, its price will go up. Similarly, if demand for a particular stock declines due to negative sentiment or poor performance, its price will fall.
As a writer, you need to have a deep understanding of how the stock market works and how stocks are priced. You also need to be able to explain complicated concepts clearly and concisely. This includes a clear explanation of different types of shares, such as preferred and common stock, and how the various shareholders in a company make decisions. You also need to be able to distinguish between the fair value of a stock and its market price, which is based on demand and supply.
While you can buy individual stocks through a brokerage account, most investors these days invest in funds that hold hundreds or thousands of stocks. These are called mutual funds and exchange-traded funds. This is a much easier way to diversify your portfolio without having to spend time reading annual reports and comparing performance data. And it can help you avoid getting caught up in short-term market fluctuations.
Most employer-sponsored retirement plans, such as 401(k)s, hold some company stocks, too. You can learn more about how stocks work in these plans by visiting their websites. But it’s best to consult with an advisor before making any investment decisions. A good advisor can help you build a diversified portfolio that’s aligned with your goals and risk tolerance. And they can help you understand the fees involved in buying and selling stocks.