The stock market is a confusing investment tool to master. While you can make a lot of money betting on the right company, it is also incredibly risky. If you think you have a good eye for valuing companies in advance, than the stock market might be the perfect investment tool for you.

Define

First, let’s define the stock market. The stock market is made of many exchanges, some of which you have probably heard of, like NASDAQ and the New York Stock Exchange. There companies are listed, and buyers and sellers can trade them. The value of a stock is based on its demand. All trades must go through a stock broker who executes the trades for the people he/she is representing.

stock market

Stock market indexes

Have you heard that the market is up or down today? They’re actually referring to one of the major stock market indexes. The indexes track a large number of stocks and can refer to a particular industry or the entire stock market in general. The most popular ones we hear about are the Dow Jones, NASDAQ, and S&P 500. These indexes give us a feel for how the overall market is performing on a given day. Another investment tool you should be aware of is a index fund. Index funds allow you to invest in a particular sector of the stock market versus a specific company.

Diversification

When it comes to investing, it’s crucial that you diversify your money. Indexes are a great way to do this, as it includes many different companies over a wide variety of industries. This gives you a safety net and provides less volatility. If you invest all your money in a single company, you’re betting it all on one horse. If anything goes wrong with the company, prepare for a major loss.
When investing we recommend having a diversified portfolio. This means owning stocks from many different companies of all different types.