The Stock Market

What is a stock?

When a company wants to raise money, it can sell small pieces of ownership to the public. Each piece is called a share of stock. When you buy a share of Apple, you literally own a tiny fraction of Apple, Inc. As the company grows and becomes more valuable, your share grows in value too.

Companies sell shares on a stock exchange — the most well-known in the U.S. are the New York Stock Exchange (NYSE) and the Nasdaq. These are marketplaces where buyers and sellers trade shares throughout the day.

Why do stock prices change?

Stock prices are driven by supply and demand. If more people want to buy a stock than sell it, the price goes up. If more people want to sell than buy, the price goes down. A few things move that demand:

• Company performance: Strong earnings reports push prices up; disappointing results push them down
• News and events: A product launch, a lawsuit, or a change in leadership can move a stock dramatically
• Economy-wide trends: Interest rate changes, inflation data, and unemployment numbers affect the whole market
• Investor sentiment: Sometimes markets move on fear or excitement alone — this is called market psychology

Stocks vs. bonds

Stocks and bonds are the two main types of investments, and they work very differently:

Most investors hold a mix of both. When stocks are down, bonds often hold steady — this is called diversification.

How to start investing

You don't need thousands of dollars or a broker in a suit. Here's the realistic path for a first-time investor:

• Open a brokerage account: Fidelity, Schwab, and Robinhood all offer free accounts with no minimum balance
• Start with index funds: Instead of picking individual stocks, buy a fund that tracks the whole market. S&P 500 index funds spread your money across 500 companies at once, reducing your risk
• Invest consistently: Putting in $50 a month beats waiting to have $5,000. This is called dollar-cost averaging — you buy more shares when prices are low and fewer when they're high
• Don't panic sell: The market always drops sometimes. Investors who hold through downturns and stay invested almost always come out ahead over the long term

Types of retirement accounts

One of the best ways to invest is through tax-advantaged retirement accounts. Two important ones:

• 401(k): Offered by employers. You contribute pre-tax money (lowering your tax bill now), and many employers match a percentage of your contribution — that's free money. You pay taxes when you withdraw in retirement.
• Roth IRA: You contribute after-tax money, but it grows completely tax-free and you pay no taxes on withdrawals in retirement. If you're young and expect to earn more later, a Roth IRA is often the smarter choice.

Common mistakes to avoid

• Timing the market: Trying to buy at the exact bottom and sell at the exact top almost never works, even for professionals
• Putting all your money in one stock: If that company collapses, you lose everything — diversify
• Panic selling: Markets drop. History shows they always recover. Selling during a crash locks in your losses
• Waiting for the "perfect" moment: Time in the market beats timing the market. Start now, even with $25

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