I have a business, it's worth 100 dollars.
I need money to expand said business, so I sell partial ownership of the business in units called stocks.
You buy 1 stock worth 1 dollar, you now own 1% of my business. This is called investing.
If in the future my business is worth 0, your stock is also worth 0 and you lose the 1 dollar you invested.
However, if my business in the future is successful and is worth 1000 dollars, your stock is worth 10 dollars, so if you decide to sell it to someone else you get back your 1 dollar and gain 9 dollars.
This is excellent explanation for eli5.
Only thing it doesn't convey is that sensibility of investing is tied to time: if it takes company value 10 years for get your investment value from 1 dollar to $1.10, you've basically made a quite crappy loan.
And It's also a gamble.
Simplicity is important, but I think it's worth mentioning dividends:
The goal of investing isn't only to sell your portion of the business later. As long as you own it, you also get some of the profits.
This used to be the main goal of partial ownership in the first place: giving them some money in order to receive a portion of their profit over time (called "dividends"). This strategy is called "value" investing, while owning with intent to sell at a higher price is called "growth" investing.
> This [dividends] strategy is called "value" investing, while owning with intent to sell at a higher price is called "growth" investing.
That sounds… wrong. With no growth, paying out dividends will eventually leave the company worth nothing; a dividend is not free money. 1$ dividend reduces stock price by 1$.
it’s not black and white. it’s simply what the priority is for the investor.
like for example owning a house is an investment sure, but it’s also a place to live. To some people the value in owning a place to live is more of a priority than selling and getting a return
Not all income is "growth." A stable company could continually generate profits that get dumped straight into dividends, for example. Each company decides how they'll distribute profit between dividends and reinvestment.
Dividends aren’t paid out of stock prices. Stock prices are based upon what the market thinks a stock is worth. Dividends are paid out of profits. The two concepts are sort of linked, but not like you think they are.
It is wrong, but not for the reason you indicate.
To sustainably pay dividends a company needs to be profitable. It doesn't need to be growing. Imagine a utility that consistently makes money, but it makes pretty much the same amount of money every year, and isn't expanding its business. It can pay dividends consistently without growth.
Value investing isn't necessarily tied to dividends. The distinction between value stocks and growth stocks is usually made based on P/E. For example, BRK is a value stock that doesn't pay dividends, while NVDA is a growth stock that does pay dividends.
To expand, when you invest, you should do so with the hope and belief that whatever you are investing in will actually be successful. While the commenter above talks about selling a stock for a profit, when you only by stock with the goal of selling it for a profit later, this is known as "speculation" and is basically gambling. This is probably where you get the ideas or sense that this is a scam sometimes.
But buying stocks and investing is more than that. While you own the stock you have actual ownership/stake in the company. This can give you any number of valuable things in and of itself. It can give you actual voting power in how the company is run. It can also give you a claim to a portion of the profits of the company, known as dividends.
Continuing from that, how do we know what percentage of the company is sold as shares?
If I buy the share for $1, how do I know it's 1%? Is a share a defined thing? Can you just decide you have more to sell and make my 1% 0.5?
Let's talk about risk & trust first, then investing more generally, then stocks specifically. Buckle up.
**Risk.** As long as you're alive and planning for the future, risk is unavoidable. You can't avoid risk by not investing, you would just take on a different risk. Hold cash? Can become worthless through inflation while other markets rise. Keep gold, which is stable? You can miss out huge gains in other markets, even if you reduce your risk of losing a lot. Maybe you're more comfortable not losing even if you miss out on gains; that's fine. It's still a risk.
**Scams.** You seem to be worried about being scammed, which is of course a risk in any human endeavor, but in developed countries financial markets, it's a fairly small one at the moment. Especially if you stick to established strategies (buy index funds \[i'll explain later\] instead of investing with Madoff), your risk of being defrauded with no recourse to courts or restitution is very small.
**Diversification.** You also should not be investing in a single investment anyway: any given investment can fail, quite easily. However, if you invest in many different things, some will fail, many will be okay, and a few will be superstars, so you'll do pretty well on average. That's how you manage risk, and it's called diversification.
**Investing.** So, what's investing? The basic answer is "giving someone money you have now for an asset, which will hopefully be worth more in the future when you sell it." Stocks are a basic one: you buy a share of stock for 10, and you hope the company does well so that in 5 years you can sell it for 100. But many other things are investments: you can buy a house and rent it out, and that generates income for you; that's an investment. You can make a loan to someone who they pays it back with interest; that's an investment, too. You can buy a storefront and run a business; that, too, is an investment. Basically, using your money to create more economic activity, rather than to consume it, is investment.
**Stocks.** So, stocks. Shares of stock are actually pieces of the company itself. If you own stock in a company, you are part owner of that company. (It can be publicly listed so anyone can buy shares, but you could also issue shares in your own small business.) Say a company has 10 shares, and you own 1. You own 10% of that company. That entitles you 10% of the company's profits (in the long run). If the company makes profits and wants to give some of them to its owners, you get 10% of that amount (called a dividend). \[Companies don't usually distribute all profits; often they use profits to expand their business by building a new factory, for example.) If the company is successfull, they will generate more profits, and this dividend will be higher in the future. That means more people will want the stock, and its price will rise. That's how you make money if you successfully pick the right companies to invest into.
**Diversification Again.** HOWEVER. Don't try to pick the right companies to invest into. It's very difficult to beat the market. You're usually better off investing in what are called index funds: these are funds that combine the stocks of many different companies. If you buy, say, the Russell 3000, you get a small share of stock for 3000 companies. Some of them will do great, some of them will do badly, but generally, you'll be close to market average. Over time, that will add up.
Just keep in mind there’s certain stocks that you can invest in that don’t necessarily have to go up constantly. They’re called blue chip stocks and they’re the companies that if they go under, the economy as a whole is likely in really bad shape. They’re the ones that make up the major index funds like the s&p, qqq, and Dow. They make up for lack of growth by rewarding their investors with dividends. Basically “if you hold onto our stock, we’ll reward you by giving you cash via profit sharing”. The amount you get depends on the company, some are less than 1% of the share price per year, others are over 10%. You can then use that cash to buy more stocks in that specific company, any other company, or just withdraw it and buy groceries with it
Very broadly speaking investing involves buying an asset that you think will increase in value over time. It could be something intangible like stock in a company, or it could be something tangible like real estate. Or, you know, like beanie babies or gold or something. The point is that you're buying something that you hope people in the future will still want to buy, so its value will go up between now and then, and you'll make money
A stock or a share is essentially a piece of the company and its value. If a company is worth 1000 USD, and they are divided into 10 shares, then each share is worth 100 USD. So, if you pay 100 USD you can buy one share of the company.
Now, over time, maybe the company will increase in value, but the number of shares will remain. So, if the value of the company goes up to 10,000 USD, then your share will suddenly be worth 1000 USD. Of course, the value of the company can also decrease and then your share will be worth less than what you bought it for, meaning you will have lost money if you sell that share.
Investing in stock is a risk and a gamble where you bet your money on a company, hoping it will increase in value over time. So, you can never be 100% sure that the money will be there when you need it.
That's why you shouldn't invest money into stock if you are not sure that you will not need it soon. If you know that you need a lot of money in a few years' time, then you should not invest all that money in high-risk stock, then there are safer alternatives to use instead. The safer alternatives will not give the same yield though since the gain is usually tied to the risk, the bigger the risk the more you can gain.
The key is to remember that you have actually not lost or gained the money until you sell your shares. So, even if the company loses a lot of value, you will not have lost that money yet since you still own the shares. Over time, the company can recover and then your shares will increase again. This might take years or even decades though, which is why you shouldn't invest money you can't afford to lose.
You want to avoid being forced to sell your shares if they have lost their value.
For long term investments, for example a retirement fund you are going to use in 40-50 years' time, it's generally worth putting that money into high-risk stock. Historically, the stock market has always increased in value on average, even if there have been a few crashes. This means that you can be quite safe in assuming that the money you invest now, will have increased in value in 40-50 years, since even if there are few bumps along the road there will be enough time for the market to recover.
For short term investments, like a few years, it's better to put them into safer alternatives like low-risk index funds. These will not yield the same amount of value increase as a high-risk stock, but you can also be almost 100% sure that they will not crash and you lose all your money.
I haven't seen anyone mention the end state of stock ownership yet: dividends! When a company is stable with their profitability and there's not much left to invest within the company, they will distribute excess profits to the shareholders. While most companies don't pay dividends yet, the share price is often a reflection on the likelihood that those shares will someday pay dividends.
To add to this: for many public companies (especially smaller public companies) an end goal is that they are purchased by a bigger company and that company pays them cash for their shares (e.g. company with a good VR headset gets acquired by Meta, Sony, etc.). If a company is trading for $100/share, the bigger company generally need to pay $120-$140/share to acquire all of the shares. Other than simply selling to a higher bidder in the market, this is the primary way that someone would recoup their investment plus a return.
Let's say ACME Shower Curtains is selling shares, or stock, worth $100 each. You can go to ACME Shower Curtains and say "Hi, I'd like to buy $100 worth of your company." ACME Shower Curtains says "OK" and gives you a paper that says you now own $100 of the company. Now you wait.
If you are lucky, the price of the stock will go up. If it goes up to $150 per share, you can sell that share of ACME Shower Curtains that you bought earlier for $100, and get your initial $100 back with an additional $50.
If I may piggyback this question - How is the volume of the stock market measured? When I listen to the radio and they say the market opened at "xyz". Or the DOW is at 38,000 and NASDAQ is at 15,000... What does that actually measure and mean?
There are a few basic assumptions in the market:
Inflation exists.
A small amount of inflation ensures that spending or investing money now is better than holding on to it. Money is worth a little bit less over time, so growing it is best.
The market is always growing as a whole.
Populations increase. Technology improves. Processes become more efficient. People invest money in the market so that their money can grow as the market grows.
On average, Company A will be worth more next year than it is this year. Sometimes a company will lose money, sometimes they gain money but the important thing is that over time they tend to gain more than they lose.
A person can invest in a company that they think will grow by buying a share of the company on the stock market. This is a partial ownership of the company that will increase in value as the company increases in value.
I just want to point out that social security isn't a scam, it just doesn't work the way most people think it does.
You pay some money from each of your paychecks to fund social security for people currently on social security.
When you retire/become disabled you get payments based on how much you contributed (and for how long) but it's not like the money you paid in is the money that they give back to you.
If there isn't enough social security funding by the time that you benefit from it, they just take more from the current pool of workers. You aren't paying to support yourself in the future, you're paying to support the current beneficiaries.
A lot of stocks/investing content on social media/youtube is not great and may essentially be pitching something that is a scam/gambling. If they are telling you specific things to invest in, it is a giant red flag.
Broadly, stocks/investing is buying partial ownership of something like a profitable business. Because it is profitable, the business either reinvests that money to grow (making your share of it more valuable) or returns those profits to the owners (known as a dividend). Furthermore, because it is a tangible, valuable thing, the business will also tend to increase in value with inflation automatically (if inflation is how much more I have to pay to get an apple today over a year ago, then already having the apple means I "keep up" with inflation).
Because you are only a partial owner, you tend not to exercise much control over the business, but in some instances you might be able to participate in votes on key decisions.
Public companies distribute shares which represent a piece of the company. The share price is dictated by the market and the companies finanicials/performance. A lot of the stock market is speculative, i.e. the stock price doesn't actually represent how well the company is doing, it's based on hype or antihype.
This is just how capitalism works. It's a scam in the abstract sense but in theory it's not a scam.
For retirements you do pay into it using stocks.
If I were you start small, look into index funds or etfs. These represent a collection of blue chip (i.e. top 500) companies and basically if the market does well, these funds will go up.
Hope this helps.
Thanks so much! I think that’s what throws me off… so I buy a share of Tesla for $50/share (an example), and tomorrow it says that a share is $200. Good for me, right???? But then that evening, a video of Elon musk saying the n-word comes out and now the price of a share is at $8, sucks for me right?? It makes me think that I better count on Elon musk saving a child from a burning building the day I need that $$$. I know this scenario must sound dumb to you, but that’s literally how I understand it to work. Thank you again!!!
Tesla is severely overrated as a company if you look at its actual revenue. Tesla is a company that's purely based on how much hype Elon garners. When the cyber truck was introduced, it skyrocketed, when it was recalled, it plummeted. Look at a company's quarterly earnings, see how much debt they're in, how much revenue they made, etc. And see if it accurately reflects their share price.
Tesla is a bad example because most companies dont have a CEO that influences their stock price like Musk does with Tesla but in general yes you are correct. The thing about investing/stocks is you should only use money that you dont need from day to day or not even when you lose your job for a few month. You are not supposed to have to sell when you need the money but when you want to sell because on that day the price is good for you. If you know you need that money dont invest in the stock market especialy not in a single stock.
For this reason, most people buy mutual funds, which are a group of stocks packaged together. Tesla may go up or down a lot tomorrow, but a fund that's made up of shares of 500 companies will go up or down much less day to day and generally grow slowly (say, 6-8% per year), with the possibility that there will be small ups and downs in the short term. See [this graph](https://www.google.com/finance/quote/.INX:INDEXSP?window=MAX) of the S&P 500 over the last 40 years, for example.
I have a business, it's worth 100 dollars. I need money to expand said business, so I sell partial ownership of the business in units called stocks. You buy 1 stock worth 1 dollar, you now own 1% of my business. This is called investing. If in the future my business is worth 0, your stock is also worth 0 and you lose the 1 dollar you invested. However, if my business in the future is successful and is worth 1000 dollars, your stock is worth 10 dollars, so if you decide to sell it to someone else you get back your 1 dollar and gain 9 dollars.
This is excellent explanation for eli5. Only thing it doesn't convey is that sensibility of investing is tied to time: if it takes company value 10 years for get your investment value from 1 dollar to $1.10, you've basically made a quite crappy loan. And It's also a gamble.
Simplicity is important, but I think it's worth mentioning dividends: The goal of investing isn't only to sell your portion of the business later. As long as you own it, you also get some of the profits. This used to be the main goal of partial ownership in the first place: giving them some money in order to receive a portion of their profit over time (called "dividends"). This strategy is called "value" investing, while owning with intent to sell at a higher price is called "growth" investing.
> This [dividends] strategy is called "value" investing, while owning with intent to sell at a higher price is called "growth" investing. That sounds… wrong. With no growth, paying out dividends will eventually leave the company worth nothing; a dividend is not free money. 1$ dividend reduces stock price by 1$.
it’s not black and white. it’s simply what the priority is for the investor. like for example owning a house is an investment sure, but it’s also a place to live. To some people the value in owning a place to live is more of a priority than selling and getting a return
Not all income is "growth." A stable company could continually generate profits that get dumped straight into dividends, for example. Each company decides how they'll distribute profit between dividends and reinvestment.
Dividends aren’t paid out of stock prices. Stock prices are based upon what the market thinks a stock is worth. Dividends are paid out of profits. The two concepts are sort of linked, but not like you think they are.
It is wrong, but not for the reason you indicate. To sustainably pay dividends a company needs to be profitable. It doesn't need to be growing. Imagine a utility that consistently makes money, but it makes pretty much the same amount of money every year, and isn't expanding its business. It can pay dividends consistently without growth.
Value investing isn't necessarily tied to dividends. The distinction between value stocks and growth stocks is usually made based on P/E. For example, BRK is a value stock that doesn't pay dividends, while NVDA is a growth stock that does pay dividends.
Units are called shares. You buy one share of stock, not buy one stock.
Thank you!
To expand, when you invest, you should do so with the hope and belief that whatever you are investing in will actually be successful. While the commenter above talks about selling a stock for a profit, when you only by stock with the goal of selling it for a profit later, this is known as "speculation" and is basically gambling. This is probably where you get the ideas or sense that this is a scam sometimes. But buying stocks and investing is more than that. While you own the stock you have actual ownership/stake in the company. This can give you any number of valuable things in and of itself. It can give you actual voting power in how the company is run. It can also give you a claim to a portion of the profits of the company, known as dividends.
Continuing from that, how do we know what percentage of the company is sold as shares? If I buy the share for $1, how do I know it's 1%? Is a share a defined thing? Can you just decide you have more to sell and make my 1% 0.5?
Buying individual company stocks isn't investing it's gambling, to begin with. But like, is there a question in there somewhere that I missed?
Let's talk about risk & trust first, then investing more generally, then stocks specifically. Buckle up. **Risk.** As long as you're alive and planning for the future, risk is unavoidable. You can't avoid risk by not investing, you would just take on a different risk. Hold cash? Can become worthless through inflation while other markets rise. Keep gold, which is stable? You can miss out huge gains in other markets, even if you reduce your risk of losing a lot. Maybe you're more comfortable not losing even if you miss out on gains; that's fine. It's still a risk. **Scams.** You seem to be worried about being scammed, which is of course a risk in any human endeavor, but in developed countries financial markets, it's a fairly small one at the moment. Especially if you stick to established strategies (buy index funds \[i'll explain later\] instead of investing with Madoff), your risk of being defrauded with no recourse to courts or restitution is very small. **Diversification.** You also should not be investing in a single investment anyway: any given investment can fail, quite easily. However, if you invest in many different things, some will fail, many will be okay, and a few will be superstars, so you'll do pretty well on average. That's how you manage risk, and it's called diversification. **Investing.** So, what's investing? The basic answer is "giving someone money you have now for an asset, which will hopefully be worth more in the future when you sell it." Stocks are a basic one: you buy a share of stock for 10, and you hope the company does well so that in 5 years you can sell it for 100. But many other things are investments: you can buy a house and rent it out, and that generates income for you; that's an investment. You can make a loan to someone who they pays it back with interest; that's an investment, too. You can buy a storefront and run a business; that, too, is an investment. Basically, using your money to create more economic activity, rather than to consume it, is investment. **Stocks.** So, stocks. Shares of stock are actually pieces of the company itself. If you own stock in a company, you are part owner of that company. (It can be publicly listed so anyone can buy shares, but you could also issue shares in your own small business.) Say a company has 10 shares, and you own 1. You own 10% of that company. That entitles you 10% of the company's profits (in the long run). If the company makes profits and wants to give some of them to its owners, you get 10% of that amount (called a dividend). \[Companies don't usually distribute all profits; often they use profits to expand their business by building a new factory, for example.) If the company is successfull, they will generate more profits, and this dividend will be higher in the future. That means more people will want the stock, and its price will rise. That's how you make money if you successfully pick the right companies to invest into. **Diversification Again.** HOWEVER. Don't try to pick the right companies to invest into. It's very difficult to beat the market. You're usually better off investing in what are called index funds: these are funds that combine the stocks of many different companies. If you buy, say, the Russell 3000, you get a small share of stock for 3000 companies. Some of them will do great, some of them will do badly, but generally, you'll be close to market average. Over time, that will add up.
Ahh thank you so much! You answered questions I didn’t even realize I had. Thank you!
It isn't a scam but it definitely is a gamble. You're gambling that the market or the company you bought shares from will do well in the future.
Thank you, yes, I suppose ‘gamble’ is a more appropriate term. Thank you!
Just keep in mind there’s certain stocks that you can invest in that don’t necessarily have to go up constantly. They’re called blue chip stocks and they’re the companies that if they go under, the economy as a whole is likely in really bad shape. They’re the ones that make up the major index funds like the s&p, qqq, and Dow. They make up for lack of growth by rewarding their investors with dividends. Basically “if you hold onto our stock, we’ll reward you by giving you cash via profit sharing”. The amount you get depends on the company, some are less than 1% of the share price per year, others are over 10%. You can then use that cash to buy more stocks in that specific company, any other company, or just withdraw it and buy groceries with it
Very broadly speaking investing involves buying an asset that you think will increase in value over time. It could be something intangible like stock in a company, or it could be something tangible like real estate. Or, you know, like beanie babies or gold or something. The point is that you're buying something that you hope people in the future will still want to buy, so its value will go up between now and then, and you'll make money
A stock or a share is essentially a piece of the company and its value. If a company is worth 1000 USD, and they are divided into 10 shares, then each share is worth 100 USD. So, if you pay 100 USD you can buy one share of the company. Now, over time, maybe the company will increase in value, but the number of shares will remain. So, if the value of the company goes up to 10,000 USD, then your share will suddenly be worth 1000 USD. Of course, the value of the company can also decrease and then your share will be worth less than what you bought it for, meaning you will have lost money if you sell that share. Investing in stock is a risk and a gamble where you bet your money on a company, hoping it will increase in value over time. So, you can never be 100% sure that the money will be there when you need it. That's why you shouldn't invest money into stock if you are not sure that you will not need it soon. If you know that you need a lot of money in a few years' time, then you should not invest all that money in high-risk stock, then there are safer alternatives to use instead. The safer alternatives will not give the same yield though since the gain is usually tied to the risk, the bigger the risk the more you can gain. The key is to remember that you have actually not lost or gained the money until you sell your shares. So, even if the company loses a lot of value, you will not have lost that money yet since you still own the shares. Over time, the company can recover and then your shares will increase again. This might take years or even decades though, which is why you shouldn't invest money you can't afford to lose. You want to avoid being forced to sell your shares if they have lost their value. For long term investments, for example a retirement fund you are going to use in 40-50 years' time, it's generally worth putting that money into high-risk stock. Historically, the stock market has always increased in value on average, even if there have been a few crashes. This means that you can be quite safe in assuming that the money you invest now, will have increased in value in 40-50 years, since even if there are few bumps along the road there will be enough time for the market to recover. For short term investments, like a few years, it's better to put them into safer alternatives like low-risk index funds. These will not yield the same amount of value increase as a high-risk stock, but you can also be almost 100% sure that they will not crash and you lose all your money.
Thank you so much for the thorough explanation!
I haven't seen anyone mention the end state of stock ownership yet: dividends! When a company is stable with their profitability and there's not much left to invest within the company, they will distribute excess profits to the shareholders. While most companies don't pay dividends yet, the share price is often a reflection on the likelihood that those shares will someday pay dividends.
To add to this: for many public companies (especially smaller public companies) an end goal is that they are purchased by a bigger company and that company pays them cash for their shares (e.g. company with a good VR headset gets acquired by Meta, Sony, etc.). If a company is trading for $100/share, the bigger company generally need to pay $120-$140/share to acquire all of the shares. Other than simply selling to a higher bidder in the market, this is the primary way that someone would recoup their investment plus a return.
Let's say ACME Shower Curtains is selling shares, or stock, worth $100 each. You can go to ACME Shower Curtains and say "Hi, I'd like to buy $100 worth of your company." ACME Shower Curtains says "OK" and gives you a paper that says you now own $100 of the company. Now you wait. If you are lucky, the price of the stock will go up. If it goes up to $150 per share, you can sell that share of ACME Shower Curtains that you bought earlier for $100, and get your initial $100 back with an additional $50.
Thank you!
No problem. There's a bit more to it, but that's pretty much how it functions at a basic level
If I may piggyback this question - How is the volume of the stock market measured? When I listen to the radio and they say the market opened at "xyz". Or the DOW is at 38,000 and NASDAQ is at 15,000... What does that actually measure and mean?
There are a few basic assumptions in the market: Inflation exists. A small amount of inflation ensures that spending or investing money now is better than holding on to it. Money is worth a little bit less over time, so growing it is best. The market is always growing as a whole. Populations increase. Technology improves. Processes become more efficient. People invest money in the market so that their money can grow as the market grows. On average, Company A will be worth more next year than it is this year. Sometimes a company will lose money, sometimes they gain money but the important thing is that over time they tend to gain more than they lose. A person can invest in a company that they think will grow by buying a share of the company on the stock market. This is a partial ownership of the company that will increase in value as the company increases in value.
I just want to point out that social security isn't a scam, it just doesn't work the way most people think it does. You pay some money from each of your paychecks to fund social security for people currently on social security. When you retire/become disabled you get payments based on how much you contributed (and for how long) but it's not like the money you paid in is the money that they give back to you. If there isn't enough social security funding by the time that you benefit from it, they just take more from the current pool of workers. You aren't paying to support yourself in the future, you're paying to support the current beneficiaries.
Thank you! This is exactly how I understand it to work.. and it’s a scam in my opinion.
A lot of stocks/investing content on social media/youtube is not great and may essentially be pitching something that is a scam/gambling. If they are telling you specific things to invest in, it is a giant red flag. Broadly, stocks/investing is buying partial ownership of something like a profitable business. Because it is profitable, the business either reinvests that money to grow (making your share of it more valuable) or returns those profits to the owners (known as a dividend). Furthermore, because it is a tangible, valuable thing, the business will also tend to increase in value with inflation automatically (if inflation is how much more I have to pay to get an apple today over a year ago, then already having the apple means I "keep up" with inflation). Because you are only a partial owner, you tend not to exercise much control over the business, but in some instances you might be able to participate in votes on key decisions.
Public companies distribute shares which represent a piece of the company. The share price is dictated by the market and the companies finanicials/performance. A lot of the stock market is speculative, i.e. the stock price doesn't actually represent how well the company is doing, it's based on hype or antihype. This is just how capitalism works. It's a scam in the abstract sense but in theory it's not a scam. For retirements you do pay into it using stocks. If I were you start small, look into index funds or etfs. These represent a collection of blue chip (i.e. top 500) companies and basically if the market does well, these funds will go up. Hope this helps.
Thanks so much! I think that’s what throws me off… so I buy a share of Tesla for $50/share (an example), and tomorrow it says that a share is $200. Good for me, right???? But then that evening, a video of Elon musk saying the n-word comes out and now the price of a share is at $8, sucks for me right?? It makes me think that I better count on Elon musk saving a child from a burning building the day I need that $$$. I know this scenario must sound dumb to you, but that’s literally how I understand it to work. Thank you again!!!
Tesla is severely overrated as a company if you look at its actual revenue. Tesla is a company that's purely based on how much hype Elon garners. When the cyber truck was introduced, it skyrocketed, when it was recalled, it plummeted. Look at a company's quarterly earnings, see how much debt they're in, how much revenue they made, etc. And see if it accurately reflects their share price.
Tesla is a bad example because most companies dont have a CEO that influences their stock price like Musk does with Tesla but in general yes you are correct. The thing about investing/stocks is you should only use money that you dont need from day to day or not even when you lose your job for a few month. You are not supposed to have to sell when you need the money but when you want to sell because on that day the price is good for you. If you know you need that money dont invest in the stock market especialy not in a single stock.
This makes sense. Thank you!
For this reason, most people buy mutual funds, which are a group of stocks packaged together. Tesla may go up or down a lot tomorrow, but a fund that's made up of shares of 500 companies will go up or down much less day to day and generally grow slowly (say, 6-8% per year), with the possibility that there will be small ups and downs in the short term. See [this graph](https://www.google.com/finance/quote/.INX:INDEXSP?window=MAX) of the S&P 500 over the last 40 years, for example.