The stock market is where companies sell shares of their ownership (known as equity) to investors. Stocks are traded on a public exchange, the largest being the New York Stock Exchange and the Nasdaq. This raises capital for the company and gives the investor a piece of the business that can be liquidated for profit or used to support the business.
Stock prices are constantly changing as buyers and sellers negotiate a price. If the demand for a particular stock is higher than the supply, then the price will rise. Conversely, if the stock is in oversupply or the company’s earnings are lower than expected, then the price will drop. In addition, a variety of other factors can affect stock prices including interest rates set by central banks to control monetary policy, earnings reports from companies and revenue growth.
A stock’s price can also be affected by economic shifts – for example, when the economy is slowing, consumers may cut back on nonessential spending and that can impact consumer discretionary stocks. A stock’s price can also be impacted by the type of company it is – companies that specialize in energy, technology or healthcare are usually considered growth stocks while consumer staples and utilities are often seen as less risky investments.
It can take time and research to build a portfolio of individual stocks but technology is making it easier than ever to start investing and growing your money over the long-term. The biggest benefit is that by investing in a diverse mix of stocks, you can help to minimize your risk and potentially generate more steady returns than putting all your eggs in one basket.