Chetla Sebree - Understanding the Stock Market

People who invest in the stock market might enjoy periods of stability but should be prepared for the ups and downs the market regularly experiences.

INTRODUCTION

STOCKS, SHARES, AND BONDS

E ver heard a news anchor say the Dow Jones is up? Or one mention something about the NASDAQ? With these terms, you may also have heard an unfamiliar point systemthe Dow is down 500 points. Its hard to turn on the television or look at a newspaper without seeing news about the stock market. Because of the unfamiliar terminology and point system, however, some people decide to completely ignore the reports about the stock market. These people often have not invested, or placed money into, the stock market. For that reason, they think that the market doesnt affect them. However, even if you dont have money in the stock market, the health of the market affects all of our everyday lives.

Defining the Stock Market

The stock market, or stock exchange, is where buyers and sellers come together to facilitate the sale and purchase of shares, stocks, and bonds. A share is a unit of ownership in a company. Stocks are also units of ownership. Although these words are sometimes used interchangeably, stock is a more general term to discuss things bought and sold through the market. Meanwhile, share usually refers to specific certificates of ownership of a particular company. A bond is, essentially, a loan that an individual gives a company or government. The borrower agrees to pay back that loan with regular installments. Collectively, stocks, bonds, and shares are known as securities. A security is a certificate that proves a persons partial ownership of, or investment in, a company or government.

Although these terms surrounding the stock market may seem abstract, the market affects nearly everything we do. Primarily, it has a strong effect on our economy, which is the overall wealth of a region or country.

Why Invest?

One of the most important things that people should know is that the stock market is not a bank. When you put money in a bank, it is almost always safe. The bank will give the money back to a depositor whenever he or she is ready to use it. That is not the case with the stock market. People who put their money in the stock market can lose it all if the stocks that they invest in go down, or lose value. They can also make moresometimes much morethan they invested if their stocks go up, or increase in value.

A stock market ticker like this one or the one that runs through Times Square in New York City displays the changing prices of stocks along with other data about current market conditions.

Although stocks, shares, and bonds can sound like abstract terms, it is important to remember that actual money backs these types of investments.

The stock market can be risky. So if the stock market is a risk, why do people invest in it? The potential to make money prompts people to make investments despite the danger. Its this excitement and potential that has kept the stock market an important part of the United States economy for more than a century.