Stock Market Basics: A Beginner’s Guide

The stock market is the location in which investors purchase and sell shares (small portions of ownership of a company). As shareholders, you have a small ownership stake in the company, which could appreciate in value if the company achieves success.

The price of a stock changes daily and is primarily impacted by the performance of the underlying company (as well as the supply and demand for shares of that company's stock). An example of this would be a newly introduced blockbuster product leading to an increased interest in shares of the company resulting in an increase in the share price. Conversely, an increase in shareholder concerns over issues faced by the company (e.g. losses or declining profits) may cause the share price to decrease.

Investing in stocks may be an approach to generating returns over time; however, investing in stocks is typically risky due to the lack of stability associated with stock prices. Therefore, new investors typically begin investing small amounts of money over an extended period of time as they develop their long-term investment strategies that involve holding onto shares for multiple years while an underlying company increases its value. Some investors also utilize mutual funds and ETFs, which are investment products that allow investors to purchase multiple securities (such as stocks) at once and therefore diversify their investments and reduce overall risk.

By having a better understanding of how the stock market operates, even new investors can improve their financial decision-making abilities and build their wealth while observing how business and economic fundamentals work.