Stock Market 101

Stock Market 101
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Just getting into the stock market and investing? This is the place to start.

• Education: Elementary School • Education: Middle School

Are you brand new to investing in the stock market? This article will cover the basics of what stocks, ETFs, and dividends are so you can get started. As always, be sure to Practicing Financial Wisdom.

What Is Stock?

A stock is a unit of ownership in a company. Stocks are sold are "shares" and when you own stock in a company you become a stockholder (or shareholder). A share of stock is generally a very, very small percentage of the company. In most cases you would need to own millions of shares of stock to even own 1% of an entire company.

What Is An ETF?

ETF stands for exchange traded fund and is really a collection of stocks from multiple companies. Rather than investing your money into a single stock you can buy an ETF and be invested in multiple companies at once. Think of an ETF as not keeping all of your eggs in one basket. Common ETFs like the S&P 500 will track a large number of companies and can be a good option for long term investments.

What Is A Dividend?

A dividend is sort of like earning interest on a bank savings account. When a company makes a profit each year (for example) they can choose to pay a dividend. For every share of stock you have you will get a sum of money sent to you. Only some companies pay dividends.

When receiving your dividend you can receive it as actual money or you can reinvest it back into the company in the form of more shares of their stock. The latter is usually the better choice for those looking for long term investments.

What Stock Or ETF Should I Invest In?

This is often the hardest part of investing because there are so many choices out there and there is no single answer to this question. If you plan to do some long term investing (as you should) then you may want to look for companies that have been around for a long time and still have bright future.

A good option for many is to buy ETFs when getting started. Considering looking at ETFs that track large companies like the S&P 500 or the Dow Jones Industrial average. Be sure to also read Ways To Invest In Your Financial Future.