When you hear people talking about “the stock market,” they’re usually talking about one of the most important tools for building wealth: stocks. But what exactly is a stock, and why does it matter to you? Let’s break it down in plain English.
The Basics
A stock is basically a piece of ownership in a company. When you buy a share of a company like Apple, Tesla, or even your favorite coffee shop (if it’s public), you own a small fraction of that business. Stocks represent a claim on the company’s assets and profits.
There are two main types of stocks:
- Common Stocks: Most people invest in these. You get voting rights at shareholder meetings and a share of the company’s growth (or losses).
- Preferred Stocks: These don’t give you voting rights, but they often come with fixed dividends, which means more stable income.
How Stocks Work
When a company wants to raise money, they can sell pieces of their ownership to investors through a process called an Initial Public Offering (IPO). Once those shares are out in the world, they’re traded on stock exchanges like the NYSE or NASDAQ.
The price of a stock goes up or down based on supply and demand—how many people want to buy it versus how many want to sell it. This is influenced by everything from company performance to global economic trends, or even hype on social media.
Why People Buy Stocks
Stocks are a way to grow your money over time. On average, the stock market has returned about 7-10% per year over the long run. This beats inflation and gives your savings a chance to outpace rising costs.
Investors buy stocks to:
- Build wealth: A $1,000 investment today could grow into something much bigger in the future.
- Earn dividends: Some companies share their profits with stockholders in the form of cash payouts.
- Diversify their portfolio: Stocks offer growth potential that’s different from bonds, real estate, or savings accounts.
The Risks of Stocks
Let’s keep it real—stocks aren’t all sunshine and rainbows. There’s a reason people say, “Investing is risky.”
- Price Volatility: Stock prices can swing up or down dramatically, sometimes in a single day.
- Market Risk: Even strong companies can see their stock prices fall during a market downturn.
- Company-Specific Risk: If a company performs poorly or goes bankrupt, its stock can lose all its value.
For this reason, many beginners start with index funds or ETFs, which spread your investment across a large group of stocks to reduce risk.
WTF Should You Do?
If you’re new to investing, stocks can feel overwhelming, but they’re also an incredible tool to grow wealth. Here’s what you can do:
- Start small. Use apps like Robinhood, Fidelity, or Schwab to explore.
- Research companies before buying their stocks. What do they do? Are they profitable?
- Consider broad-market ETFs like the S&P 500 if you want to play it safe.
- Most importantly USE SENTIVEST!!!!
Key Takeaways
A stock is a small piece of ownership in a company, giving you the potential to earn returns through rising prices and dividends. While stocks can help you build wealth, they also come with risks, so it’s important to invest with a plan.
The bottom line? Stocks aren’t as scary as they seem—once you understand them, they’re just a powerful tool in your financial toolkit.
