Believe it or not, you are a part of the stock market.
When it comes to understanding the stock market, it’s important to know that everything we do usually has an affect on the stock market.
Every time you buy a Grande Guatemala Antigua Medina, you’re making Starbucks just a tad richer. Every time you download the latest Kelly Clarkson song off of iTunes (for your iPod, you are making Apple richer. Whenever you buy a Big Mac you are making McDonalds richer and your insurance provider poorer because they will have to pay for your heart transplant. I can go on, but I think you get the point.
Now let me ask you, if you like a company’s products, why not buy some shares of that company? After all, you are making the corporation richer by buying its products, so why not be a part of it and have a share in the profits by purchasing its stock?
There’s a good chance that you simply don’t understand the concept of shares and ownership of stock, which is perfectly fine.
As far as I know, the two main reasons people invest in the stock market is to make money and to have their money work for them.
Let’s explain the latter virtue first.
Understanding the stock market and the role of your money.
Did you ever wish you could make money even while you are passed out after an awesome frat party or while you are buried underneath mountains of textbooks? Then consider your prayers answered!
The beauty of having your money invested in stocks is that while you are out doing whatever it is that you do, your money is busy working for you. Owning stock is the same thing as owning a business without having to show up at work; and while the company is growing and thriving, you just sit there and count your cash.
Of course there is some risk involved in investing, but I can assure you that if you take the time to learn the intricacies that come with picking good stocks (which is no harder than peeling an avocado in the back of a moving truck – hard for some, manageable for most) then you can consider yourself more-or-less safe (and rich[er]).
How does the stock market work?
Then we have the main reason people invest – to make money. Let’s take a look at some numbers to see how much your investments can turn into after a few years, and since I’m assuming you’re all twenty somethings reading this, I won’t make the investment sums ridiculously high amounts:
If you invest one dollar a day ($365 a year) starting today, growing at an annual rate of return of 30% you end up with: a bit over $20,000 in ten years, a tad under $300,000 in twenty years and over $4 million in thirty years.
If you invest $100 a month ($1,200 a year) growing at 20% annually, you will have $37,850 in ten years, a bit under $270,000 in twenty years and just over $1.7 million in thirty years.
If you invest $300 a month ($3600 a year) growing at 15% annually, you will have $84,000 in ten years, a bit over $424,000 in twenty years and $1.8 million in thirty years.
Yes, you read those numbers correctly. This is the magic of compound interest hard at work – it brings a tear to my eye every time.
And before you decide to launch a javelin at my chest for suggesting such high rates of return: there will be years that you will make abysmal returns and there will be years that you can’t believe how much money you are making. The rates of return that I used may seem somewhat aggressive, but once you get used to the markets, making even 20% annual returns should be no harder than playing a game of ping-pong.
Those are all of the stock market basics that you need to know for now. We have more information available for you if you want to finally know how does the stock market work?
What if you want to buy stocks?
If you want to get started you can check out the best online stock brokers. I’ve also listed the best stock trading program below for your convenience.
This was a guest post from Mr. Moneybags.