Are you tempted to invest but find the stock market is like a foreign language that you want to learn but can’t seem to grasp? Don’t worry, you are not alone. Investing in the stock market doesn’t have to be complicated but there are things you should know before getting involved.
The stock market is a marketplace that matches up investors who want to buy a company’s shares with those who want to sell them. It does this through exchanges and electronic trading systems that facilitate the transactions almost instantly. Prices are maneuvered based on supply and demand for the stocks, which in turn are determined by the overall economy’s health (tax cuts can boost the market, for example; high unemployment, the opposite).
You can purchase individual stocks through a licensed broker or advisor who makes trades on your behalf. Alternatively, you can invest in what are called mutual funds or exchange-traded funds, which include the shares of multiple companies so that you don’t have to hold a single stock. The funds can track a particular sector or an index, which is useful for reducing risk by diversifying your portfolio.
When you start investing, it’s a good idea to consider low-volatility stocks, which are those that have historically experienced less dramatic price movements. These stocks are often referred to as “blue chips” and tend to belong to recession-proof sectors, such as utilities, consumer staples or healthcare. They also include such iconic American brands as Johnson & Johnson, Coca-Cola and Hershey.