Investing in the stock market

Quick answer: The basic idea behind investing in the stock market is to put money you’ve saved into stocks you think will increase in value over time.

Stock market graphThere is no guarantee that you will make money in stocks. Making your investments pay off takes a lot of work. You need to follow the financial news, use the market indices such as the Dow Jones Industrial Average , S&P 500, and the NASDAQ Composite to watch market trends, and thoroughly research companies you want to invest in.

Ways to invest in the stock market

There are many ways to invest in the stock market. A few common ways are listed below.

Instructions: Click each way to invest to learn more about it.

Buying shares in a company

When you invest in stocks, you’re investing in businesses. These could be small, medium, or large companies in the U.S. or around the world. Buying stock gives you part ownership in a company. That’s why you should only buy stocks in companies you believe in — and believe can do well. Each stock carries its own specific risks.

Mutual funds

Mutual funds allow you to pool your money with others in a professionally managed portfolio. You are purchasing shares of the overall fund rather than actual shares of the individual underlying investments. Mutual funds can offer diversification through a mix of stocks, bonds, and other investment types with varying amounts of risk and investment objectives.

Exchange-Traded Funds (ETFs)

ETFs are investment products holding a basket of assets. Some ETFs are designed to track the performance of a specified index, sector, or commodity. Others are actively managed. ETFs trade like stocks on an exchange. When you purchase an ETF, you are purchasing shares of the overall fund rather than actual shares of the individual underlying investments. ETFs carry the risk of their underlying investments and there are no guarantees that they will meet their stated objectives.

Risks and rewards

Money that is invested in the stock market can have a great potential for growth but stocks can be risky because their value can change from day to day. There are no guarantees of a profit.

Research before you invest

  • Research is critical to investing success.
  • Research before investing. Most brokerages offer research and financial news in addition to stock quotes.
  • Base your decisions to invest on facts, not emotions.
  • Be as objective as you can about the risks and potential rewards.
  • View “stock advice” about investments with skepticism. Do your research.