Stock Investing 101

STOCK INVESTING

How do stocks work? That seems like a question that one should know before investing. However, with the billions of dollars invested in employer retirement plans, many people don’t have the answer to that question.

What Are Stocks?

A stock represents a means for companies to raise capital outside of a regular revenue stream. When companies sell shares of stock, they sell a small piece of ownership for interested investors to buy. In doing so, investors get voting rights, dividends, and any gains from increases on the stock market.

Companies start as privately held and are not listed on any stock exchange. Its leaders must decide to start selling shares to the general public through an initial public offering (IPO).

Stocks and IPO

What Determines Stock Prices?

In a sense, shares of stock are priced based on supply and demand. Companies have a finite number of shares, and any investor wanting to buy stock has to decide if the price justifies a purchase.

We’ll talk about this more later, but understanding a company’s potential for long-term earnings can play a role in stock prices beyond a short-term success. Successful companies that have paved the way for increased profits over time tend to look suitable for investing.

Earnings Trend

A country’s economy can play a role in a stock’s current market price. Unemployment rates, inflation, or gross domestic product can profoundly impact the stock market at large.

Economic Factor

Any event that affects the entire stock market can impact the price of a stock. The S&P 500 can pull stock prices up or send them into a tailspin, depending on how the index itself does.

Market Condition

Changes to import or export laws or those that significantly impact a country’s economy can cause considerable shifts in prices on the stock market. Political tensions or new international deals can also play a part.

Political Concern

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