Investing in stocks is one of the most efficient ways to grow your wealth over time. It takes time and effort to understand how it all works, but once you get a grasp of the basics, technology makes investing as easy as buying groceries online. Purchasing shares in companies can help you gain partial ownership of businesses that work to create innovative technologies, improve health care or support notable causes.
Stocks, also known as equities, are securities that represent a share of ownership in a publicly traded company. Companies sell their shares to raise money often referred to as capital to grow their business and expand their operations. Investors can make returns on their investment by receiving dividends (a given amount of cash per share at regular intervals) or through capital appreciation (a rise in the price of a stock).
A stock market is made up of many components including exchanges that host the actual trading of stocks and indexes that measure prices within the market. There are many indexes but the most prominent ones that you may hear about in business reports are the Dow Jones Industrial Average, NASDAQ and the S&P 500.
The stock market is governed by the Securities and Exchange Commission along with state regulators for individual states. The price of a stock changes based on demand from new investors who want to buy and supply from existing shareholders who are willing to sell. The price of a stock can also be impacted by market conditions and general economic factors. For this reason, it is important to diversify your portfolio so that you are not too heavily invested in any one particular stock.
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