How to Invest in Stocks and Learning Important Elements of the Stock Market

Before a person decides to jump right into investing in stocks, they will first want to gain information on the many different elements that are involved in investments and the stock market. The Stock Market Explained The stock market is where all types of stock shares are traded, bought, and sold, and it is often referred to by many people as the stock exchange. Three of the largest stock exchanges are as follows: · American Stock Exchange, otherwise known as AMEX · New York Stock Exchange, otherwise known as NYSE · National Association of Securities Dealers, otherwise known as NASDAQ A simple explanation of how well various businesses and the economy is doing is provided through general market averages that are supplied by the S&P 500, Dow Jones Industrial Average, and the NASDAQ Composite Index. When figuring what a good return would be for specific investments, a person may want to consider that the annual return for the entire stock market is about 8%. Likewise, earning this amount in a year’s time would be considered as a good return. Factors that will determine the return on a specific investment can vary widely according to each particular business and how well it does throughout the year. What is a Stock? There are numerous businesses that are comprised of shares, and stocks can be described simply as shares of that business. The reason a large number of businesses choose to sell shares of their company is to obtain the funds required to continue development of the business. Expansion and research are also reasons why shares are commonly sold by companies. A person actually owns a part of the business of which stocks are owned. This means annual dividends can be earned when a business does well. Different Types of Stocks Style, size, and sector are the three ways that stocks are normally grouped. Value stocks and growth stocks describe those that are grouped by style. Stocks found at prices that are quite a bit lower than expected are known as value stocks. In some cases this may be due to public relations within the company that is poor, and it can also be due to other issues within the business. Stocks that are likely to rise in value much faster and much higher than an 8% return are known as growth stocks. Small-cap, mid-cap, and large-cap is the reference that is used for stocks that are grouped by size. Sector describes the varying types of categories in which stocks are separated. The category that a company is placed will depend on the specific area of the industry that they are in. Strategies for Investing A low-risk strategy that a vast majority of investors are familiar with is to purchase low and sell high. Having a willingness to diversify is also important, as the dividends supplied by any number of stocks at any given time can change dramatically day by day.