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The Stock Market: Explained.

Blog Post
2 min read
big gold question mark in front of a stock market graph

The stock market sounds super intimidating, right? But it’s actually not as mysterious (or exclusive) as it seems. Think of it like a big marketplace where people buy and sell little pieces of companies. 

Learning the basics–like how it works, what the risks are, and how to get started–can open up a whole new world of possibilities for growing your money! And, you don’t need to be rich or a financial expert to dip your toe in. 

Here’s what you should know and how to get started, with a little help from your SAFE Federal Credit Union family.

How The Stock Market Works

The stock market operates through exchanges, such as the New York Stock Exchange (NYSE) or NASDAQ. These exchanges connect buyers and sellers of stocks. 

Key points to consider include:

  • Shares Represent Ownership: When individuals buy stock, they are purchasing a small ownership stake in a company.
  • Market Types: The primary market involves companies issuing shares directly to investors, often through an initial public offering (IPO). The secondary market is where most trading occurs, as investors buy and sell shares among themselves.
  • Stock Prices Fluctuate: Prices change based on factors such as company performance, economic conditions, and market sentiment.

Why People Invest In Stocks

  • Stocks offer the potential for financial growth, but they also come with risks. Reasons someone might choose to invest in stocks include:
  • Building Wealth Over Time: Historically, stock markets have provided higher returns compared to other investment types, though past performance does not guarantee future results.
  • Dividends: Some companies distribute a portion of their profits to shareholders through dividends, providing an additional income stream.
  • Inflation Protection: Stocks might offer a way to outpace inflation by generating higher returns over the long term.

Considerations Before Investing

Before entering the stock market, individuals might want to evaluate their financial goals, risk tolerance, and investment knowledge. Important steps to consider include:

  • Setting Clear Objectives: Determine whether the goal is long-term growth, income generation, or something else.
  • Starting With Diversification: Investing in a mix of assets, such as stocks, bonds, and mutual funds, could reduce risk by spreading investments across various sectors and industries.
  • Learning The Basics: Researching investment strategies and financial products might help in making more confident decisions.

Risks And Challenges 

Investing in the stock market involves risks, including:

  • Market Volatility: Stock prices can rise and fall quickly, sometimes due to external factors like economic reports or geopolitical events.
  • Loss Of Principal: There is always a chance that investments may lose value.
  • Emotional Decision-Making: Reacting to market fluctuations could lead to impulsive decisions that might harm long-term plans.

While the stock market may appear complex, it offers opportunities for financial growth with careful planning and research. Starting small and focusing on long-term goals might help individuals build confidence as they navigate the world of investing.

Still not sure where to start? No matter what your goals are for the future, SAFE Investment Services wants to help you pursue them. We work alongside the professionals at LPL Financial®, who support hundreds of financial institutions and independent firms nationwide—and they're ready to put their expertise to work for you, too.

References
  • U.S. Securities and Exchange Commission (SEC) - "Beginners' Guide to Investing in the Stock Market"
  • Financial Industry Regulatory Authority (FINRA) - "Understanding the Stock Market"
  • Federal Reserve - "Investing Basics and How Markets Operate"

*This content is intended for general information purposes only. It is not intended to be relied upon and is not a substitute for professional financial advice based on your individual conditions and circumstances. 

Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. SAFE Federal Credit Union and SAFE Investment Services are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using SAFE Investment Services, and may also be employees of SAFE Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, SAFE Federal Credit Union or SAFE Investment Services. Securities and insurance offered through LPL or its affiliates are:

Not insured by NCUA or Any Other Government AgencyNot Credit Union GuaranteedNot Credit Union Deposits or ObligationsMay Lose Value

The LPL Financial registered representative(s) associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

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