The Stock Market

New to the market? Hearing about all the Wall Street bankers making money hand over fist? Have friends that are making terrific returns in the market? Well, that's how I was. I was tired of hearing about everyone making money in the stock market and for some reason i was missing out. Well not anymore! I took the necessary steps to educate myself about the stock market and its functions. I'm certainly no Warren Buffett but I'm no novice either. I've managed to understand how the market functions and believe when I say it doesn't require a genius to understand the stock market. I'm going to outline some very basic concepts in the stock market in this hubpage.

 A stock, simply put, is ownership of a business. When you buy a stock, you are giving a company money in exchange for a small piece of their business. You do this in hopes that the stock price will rise and you profit. When businesses prosper their stock prises will hopefully reflect this prosperity. Sounds great, right?! I give you money and you bring me back more. Not exactly how it works. There is also the chance that the business will not do well and you may actually incur a loss on your investment. Not to worry, if you do your homework on a business then you need not fret about trivial stock fluctuations. An investor should always hop on the train for the long haul. Often times, the short term market does not reflect the true value of a business. But, there are different theories concerning that statement and we need not delve into them here. Important points to take out of this:

• Owning a stock is owning part of a business
• Stock prices can go up or down
• Investors should invest for the long run, short term market investing is not for the inexperienced or faint hearted.

1.  Okay the first thing you need to know about the stock market, there are buyers and sellers. Just like at a grocery store, when you're buying your goods, the grocer is simultaneously selling them. This is also how the stock market works. In order for you to buy or sell stocks, there has to be a person that is going the other way. What this means for investors is that somebody in the stock transaction has to be wrong. This is a fundamental fact and the remembrance of it would serve you well.
2. The next thing that we need to tackle is supply and demand. When supply exceeds demand, prices fall. When demand exceeds supply, prices rise. Makes sense! If something is scarce, then you can charge more for it. Anyway, this is a crucial element of learning the stock market. If more people are buying stocks than selling, then that means demand is exceeding supply and prices will rise. Conversely, if more people are selling stocks than those buying them, prices will fall. These are some of the reasons that stocks fluctuate. (These are not the only reasons however, and as you will learn there are a HUGE variety of factors that go into determining a stock's movements and prices.
3. And finally the last thing that you need to know about the stock market, risk vs. reward. What this means is that its not possible to obtain profit without incurring risk. Most investing principles and portfolio managers attempt to manage and minimize this risk but it can't be eliminated. Risk vs. reward is important to keep in mind because you should always remember that there is no way to make money through stocks without the risk of incurring loss.

 Stocks are historically the best way to achieve ROI (return on investment). But there are definitely other options:

 Bonds are like stocks in that their prices change and they represent investment opportunities. The principle difference is that bonds are loans. Stocks represent ownership. When you purchase bonds, the company pays back the bond along with interest. Also, if the company were to go belly up, bondholders would be paid before stockholders. Bonds are less risky than stocks but also represent less chance for profit. Bonds should be a consideration for highly risk conscience investors.

Mutual Funds are exactly what they sound like. A money manager manages the money of individual investors. Now mutual funds are beneficial for passive investors. They offer a chance to put money to work under the supervision of someone that knows what they're doing. Highly recommended.

Things to take away from this:

• Stocks are best chance for most profits
• Bonds are less risky but offer lower returns
• Mutual funds allow for an individual to invest without worrying as much