Did you click on this article thinking you’d be getting the inside scoop on all of the intricacies of today’s stock market? Silly goose, who do I look like, Warren Buffet? Please say no.
I can’t give you the low down on derivatives and I won’t tell you the ins and outs of stock futures, at least not any better than Investopedia can. But I will break down, in laymen’s terms just a few of the ways that our money grows in the stock market.
When you purchase an individual stock you are purchasing a share of ownership in a company. Companies “sell” themselves in this way in order to get extra cash so that they can do stuff, like grow. Your investment grows in several ways.
- The value of your company can increase (aka the stock price increases). If you buy a stock for $10 and the price later goes up to $12, you could sell it for a $2 profit.
- Your company can issue a dividend – basically distributing a portion of earnings to owners.
- When you reinvest your earnings, then not only is your original investment growing, but your growth is growing and your growth’s growth is growing and so on.
The idea behind the stock market isn’t as crazy or complicated as you might think. It’s just a marketplace that brings together buyers and sellers, allowing the average Joe to become a part-owner in the average multi-billion dollar company.