4 Answers: What is a stock? I have been told to invest my inheritance in the Stock Market
I am very sorry if it sounds silly yet I don’t really understand what stock is or how the stock market exactly works. I have inherited a large sum of money and am being recommended to add a portion of it into the stock market and so would like to learn more.
What is the stock market exactly? And how does it work?
in progress 0Investing Advice 4 years 4 Answers 621 views 0
Answers ( 4 )
Hi Jessica, congratulations on your inheritance and I wish you the best in your investments. Of course as I am sure you have been recommended never put all your eggs in one basket. A good investment choice is an Index fund, for example investing in the entire S&P500.
In regards to your question regarding the stock market and stocks specifically, while this might strike the experienced investor as an overly simplistic concept, or the beginner as something too hard to understand. I will give it a shot all the same!
In general, there are many types of stocks and shares but we’ll be looking at the type that applies to the ones in the stock market. Those stocks are basically pieces of publicly-traded companies, the keyword here being publicly-traded.
When a company is trading publicly, then any one can buy into it and become a part-owner of the company, thus becoming what we call a shareholder. On the right is a list of the largest publicly traded companies by market capitalization. As a shareholder, you are a partial owner of the underlying company and have a set of rights, which are called Shareholder Rights.
So essentially you are buying a portion of a company. Think about is like a slice of a business. If a business is doing well and looks like it will do better in the future then this may be a good choice.
Of course the best results can be achieved when you can invest on a stock which has gone down yet will soon increase in value again.
Yet all of this can be quite challenging — mostly psychologically — and so it is generally said that only 1 in 10 can beat the stock market average results.
Which is why investing in an ETF or Index Fund is usually always the best way to go. Because it guarantees you always match the market average results. While most investors fall short and lose against the market, you will earn the same as the market average.
Here is a good link: www.wallstreetmojo.com/etf-vs-index-funds/
The three main descriptions of stock is Market Capitalization, which is the company’s total value, Sectors and Industries, which are categories in which companies are placed in relation to what they do; and Seculars and Cyclicals, which is related the two different types of companies and how they make their profits.
Example of Stock Chart
Stocks are what rich smart people invest in when they are down and sell when they are high. Remember that. Never buy stocks high and sell low. Always buy stocks low and sell high.