A lot of popular culture assumes that most people understand the stock market and how exactly it works, but this is often not the case. You may understand stocks at a surface level, but without more background knowledge it can be difficult to decipher the importance of investing, why the stock market rises and falls, and where to put your money. So read more to learn more about stocks!
Stocks are given to shareholders as an ownership interest in a public company (which means they have had an Initial Public Offering, or IPO). The stock market is the assortment of public stocks that can be bought and sold by the general public. Companies provide stock to the general public in order to fund their businesses, and investors choose particular stocks based on whether or not they think that company will be successful over time.
The Makeup of the Stock Market
The stock market includes thousands of publicly traded companies, but when you hear people refer to the market being up or down, that is typically based on the performance of the Standard & Poor’s 500 Index (S&P 500) or the Dow Jones Industrial Average Index. The reason these two indexes of stocks are considered an indication of the state of the market is because they are made up of roughly 530 large publicly traded companies in the US (about 500 in the S&P 500 and 30 in the Dow Jones).
Tips for Investing in the Stock Market
Whether you’re a beginner investor or have already dabbled in it, these tips are important to keep in mind for anyone investing in stocks.
- Choose your investments carefully. Choosing the right stock isn’t just about seeing how well a business has performed in the past, but also analyzing and anticipating the stock’s performance in the future. Do keep in mind, especially as a beginner, that the professionals research these stocks and likely have more insight into performance than an individual just starting out. While there is no way to guarantee their predictions will be correct, there’s often a higher chance. A good option and possible alternative to individual trading is to invest in an index fund, which is either a mutual fund or an exchange-traded fund (EFT) and can hold dozens or hundreds of stocks.
- Create a diversified portfolio. This is another good reason to invest in an index fund, because it automatically provides you with a wide range of well-analyzed stocks. Investing too much in any one stock can significantly increase the risk of you losing some or all of your investment. Diversification of your portfolio also means investing across multiple industries, as companies within the same or similar industries will likely experience comparable up/down trends.
- Ride out short-term volatility. The stock market is always going to fluctuate, and it can be nerve wracking to watch any of your stocks lose value. This can cause people to panic and decide to sell when their stocks are low. One common rule of thumb is to try to buy low and sell high — but sticking it out through short-term fluctuations is more likely to get you better long-term returns.
Connect with a Financial Advisor
A financial advisor can help you when choosing an investment to help meet your long-term financial goals. The stock market can be fast-paced and a little overwhelming, so speaking with a financial advisor can help you feel more confident in your investing decisions. At Republic Bank, we partner with Ameriprise Financial Institutions Group, a channel of Ameriprise Financial Services, LLC. Through on-site financial planning, comprehensive investment solutions, and convenient digital capabilities, our partnership can help you reach your financial goals. Reach out to us today by calling 800-526-9127.
We have a partnership with Ameriprise Financial Services to provide financial planning services and solutions to our clients. We are not an investment client of Ameriprise, but we have a revenue sharing relationship with them that creates a conflict of interest. Details on how we work together can be found on ameriprise.com/sec-disclosure.
Investment products are not insured by the FDIC, NCUA, or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
This information is being provided only as a general source of information and is not a solicitation to buy or sell any securities, accounts, or strategies mentioned. The information is not intended to be used as a primary basis for investment decisions, nor should it be construed as a recommendation or advice designed to meet the particular needs of an individual investor. Please seek the advice of a financial advisor regarding your particular financial situation.
Ameriprise Financial cannot guarantee future financial results.
Working with a financial advisor does not guarantee investment success.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon, and risk tolerance are aligned with investing in stocks, as they can lose value.
Diversification does not assure a profit or protect against loss.
ETFs may trade at a discount to NAV, are subject to tracking/correlation risk, and shareholder bear additional ETF expenses.
The Dow Jones Industrial Average (DJIA) is likely the most widely known measure of American stock market indicators. The index is more than 100 years old, includes only 30 individual stocks, and is comprised of the largest, most established firms across a broad range of industries. The DJIA is calculated based on share price – providing a greater weighting within the index to those companies with a higher share price. Due to the small number of issues contained within the index, it does not always provide the most accurate measure of aggregate stock market performance.
The S&P 500 Index is a basket of 500 stocks that are considered to be widely held. The S&P 500 Index is weighted by market value (shares outstanding times share price), and its performance it thought to be representative of the stock market as a whole. The S&P 500 Index was created in 1957 although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall US equity market. Over 70% of all US equity value is tracked by the S&P 500. Inclusion in the index is determined by Standard and Poor’s and is based upon market size, liquidity, and sector.
An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
The financial institution and Ameriprise Financial, Inc. are not affiliated.
Investment advisory products and services are made available through Ameriprise Financial Services, LLC, a registered investment adviser.
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