The stock market is a financial marketplace that matches those who want to buy stocks and securities with those who want to sell. Shares of publicly traded companies are sold to investors in order for those companies to raise money to grow their business. Investors profit from the ownership of stocks by receiving dividends and through price appreciation. Individuals can participate by opening a brokerage account either on their own (do-it-yourself or DIY) or with the assistance of an investment advisor. Institutions and groups such as pension funds, insurance companies, mutual fund companies, exchange-traded funds, and robo-advisors also participate in the stock market.
Stocks are generally considered an excellent long-term investment option. Over the past 100 years, the S&P 500 has risen on average about 10% each year, after adjusting for inflation.2 This kind of growth can help you fend off the slow, steady creep of inflation that can erode your dollar’s purchasing power, and it can also help you reach financial goals that might be difficult to save for in a shorter time frame.
But stock prices are influenced by many factors, from the fundamental (like a company’s earnings, profitability and the goods or services it provides) to the technical (like how a company is trading versus its peers or historical market trends). And of course, economic and political events can influence the markets as well. For example, tax cuts can make a company’s shares more attractive, while high unemployment will have the opposite effect.