The Amazing World of the Stock Market
Are you ready to be the CEO of any public company? Ok, maybe not. Are you ready to have partial ownership of any public company? Good, let’s get into stocks.
Stocks are like owning a part of a public company. For example, owning a share of McDonalds is about a billionth of the company. When a company is doing well, the small share of ownership you have in that company gains value. Similarly, if that company is not doing that great, the small share of ownership you have in that company will decrease in value. Based on the number of shares of the stock you buy and how much the stock increases or decreases in value is what determines how much you gain or lose in the stock market.
“Stock market goes up or down, and you can’t adjust your portfolio based on the whims of the market, so you have to have a strategy in a position and stay true to that strategy and not pay attention to noise that could surround any particular investment.”
The beauty of the stock market is that there are so many different stocks and companies to invest in. If you are interested in gaming on Xbox, PS4, or Nintendos, then you can invest in gaming company stocks (Sony, Microsoft, or Nintendo stocks) or if you love coffee, you could buy a few shares of Starbucks.
It is also important to note that owning this stock doesn’t mean you have any control or status within the actual company. Don’t expect to have a desk with your name on it once you buy a few shares of the company. The sole purpose of the stock is for a public company to sell shares of their company to the public to raise money for the company. As an investor, try not to put all your eggs in one basket. If you buy too much of one stock and suddenly the company starts to decline, you don’t have any other stocks that could balance the declining stock.
Ideally, you want a diversified portfolio. You can achieve this by buying several individual stocks on your own or investing through a mutual fund or index fund, such as the S&P 500, an index that comprises the top publicly traded 500 companies in the US. Mutual or index funds are passive investing because if one company in the index goes down, you still have others that might be doing well, which balances out your investment (click here to learn more about Passive Income). There is also a range of how long-term or short-term the investor keeps each stock as well.
Short Term vs Long Term Stock Investments
Short Term:
Short-term investments in the stock market are stocks you hold for one year or less. Most of the time, investors hold these short-term investments for only a few months or weeks. Short-term investments could be used towards small objectives in the near future.
Long Term:
Long-term investments in the stock market are stocks you keep for more than a year. Most of the time, investors hold these long-term investments for multiple years. Long-term investments could be used to support major events or purchases, such as for college savings or for the new bike you really wanted.
Overall, the Stock Market is a great place to start investing. Just know that the Stock market is a volatile place, so do some research about how a stock is doing before you go buying and selling stocks.
