A stock market is a marketplace where investors buy and sell shares of publicly traded companies. Investors can buy and sell these shares directly on a stock exchange or through their investment account with a brokerage firm. A healthy stock market helps support the economy in several ways. For example, when companies’ shares rise in value, it can give individual shareholders more money to spend and may help encourage employee bonuses. On the other hand, when share prices go down, it can hurt individual investors who have to sell at a loss. A number of factors can cause the price of a particular company’s stock to go up or down, from inside events like a faulty product to external influences such as political developments.
Stocks are an attractive way to build wealth over the long term because they offer a potential for growth. However, stocks come with risk, and on average large-company stocks have lost money one out of three years over the past 100 years. Buying and selling shares of stocks isn’t something to do on impulse, but rather with careful research and a disciplined approach that considers your goals, time horizon, and tolerance for risk.
Aside from providing a marketplace for trading, the stock market also facilitates price discovery and helps allocate resources to the most productive enterprises. Investors’ buying and selling decisions, based on myriad factors, signal to other investors which companies have potential for success and growth, and which are less likely.