Getting to Know the Stock Market

As traditional pensions and retirement plans become as antiquated as the rotary phone, more people are investing in the stock market as a way to increase their savings. Once used only by the truly wealthy, today's stock market is accessible for all investors. Whether you have $100.00 to invest or a $100 million to invest, the principles are the same. With the right information and investment advice, anyone can be a winner.

A stock is simply a share in the ownership of the company. Your stock represents a claim on the company's earnings and assets. As you purchase more stock, your stake in the company, and the potential for higher earnings, grow. Profits are often paid out as dividends, and the more stock you own, the more dividends you reap. Owning stock in a company does not mean that you have a voice in the day to day management of the company. You do, however, have a right to vote on the company's board of directors, which, should, in theory, be making sound business decisions on your behalf.

You've heard the expression 'buy low, sell high", but you may wonder what exactly that means. Stock prices fluctuate daily (even hourly), as a result of the free market economy. Share prices changes because the demand and supply of those shares change. If more people want to buy a company's stock, the price goes up. If more people are selling the stock, the stock price falls. The price of a stock is reflective of what people- both investors and the general public- feel the company is worth.

When deciding on which stocks to purchase, pay more attention to a company's earnings. The earnings are the profit a company makes. Public companies (those traded on Wall Street) are required to publish their earnings quarterly. If a company is making more money than expected, you can count on the stock price to increase. Subsequently, if the company made less money than projected, the stock price will drop.

Most people buy stock using a brokerage firm. Full service brokerage firms offer advice and manage your account for you. They tend to charge higher fees than discount brokerage firms, which usually don't provide advice or a full suite of customer service options. Online brokerage sites allow anyone with a bank account and some money to invest in the stock market. There are a number of reputable on-line sites that can help you research the earnings history and potential of any company that interests you.

When choosing which stocks to purchase consider the stock price, the company's earnings and use your own common sense and intuition decide on the value of a stock. Most stockholders have a long-term investment strategy, which allows them to weather the ups and downs of the stock market without suffering a huge financial loss. Keeping yourself informed about the general health of your stock and the company will also secure your investment against losses. Before you invest in the stock market, take a moment to assess and evaluate how much loss you stomach- and wallet can absorb, and proceed accordingly.

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