How Does the Stock Market Work?

How Do Financial Advisors Make MoneyEveryone has questions about the stock market – how should they invest? How much money should they invest? How do they decide on which stocks to buy? All of these questions leave people wishing they had paid more attention in those economics classes in college! But while business courses prepare people for the theory behind investment strategies, they often do not touch on specific strategies at all. So, in order to make the most informed decision about where to invest those hard-earned savings, spend some time learning about how the stock market works so that money can work with the investor, not against them. For additional insight, consult with a financial advisor in New Jersey who can explain the ins and outs of investing for the novice investor.

Though everyone has a different financial portfolio, one thing they should all have in common is a financial advisor. A New Jersey financial advisor will have intimate knowledge of the stock market and its inner workings, and can recommend the appropriate investment opportunities for each client’s individual needs. As such, learn about the stock market to have the most informed conversation with a financial advisor. In this way, less time will be spent with them answering basic questions. Instead, they will spend more time discussing the account’s particulars, and can customize a portfolio to the specific financial needs of the investor.

First, know what a stock, or a share in a company, is. When a company first goes public, it sells an IPO, an initial public offering that investors purchase. However, this is where the company’s involvement in the stock market ends. Once those IPO shares have been sold, they are gone. While the company keeps the money from the sold shares, the shares continue to trade based upon the performance of the company. If the shares gain value, it is likely that the company is doing well. The reverse is also true. A financial advisor in New Jersey will often tell investors that a good time to buy a stock is immediately prior to when it is about to acquire another company. Suddenly, its value will grow significantly, sometimes even overnight.

Another important aspect of the stock market to be aware of is the fact that there are actually several different types of stock markets. The NASDAQ Composite measures companies listed on NASDAQ, which tend toward high-growth and technological companies. The Dow, also known as the Dow Jones Industrial Average, measures a broader index of stocks, but started as a tracker for the top 30 companies in the United States. Another stock index is the S&P 500, which only tracks Fortune 500 companies. While there are other types of stock indexes, these three are the most popular and tend to fluctuate at different rates than each other. This is not to say that they are completely disparate but rather that when one index is down, so are the rest, but not by the same amount.

InsuranceWhile these indexes track stock prices, what determines them? The price of a stock can depend on a variety of factors, including but not limited to popularity of the brand, new marketing tools or products that the brand is launching, recent product successes, or simply desirability. Any of these qualities will make one share in the company more expensive, while the opposite qualities can significantly decrease the price of a stock. So, when exactly is the best time to buy? Put simply, pay attention to when a stock is doing well. Look at its growth over one to five years. Yahoo! Finance has a great tool to do this. If the stock has a steady upward trend, buy it when it sinks slightly. If a different stock has a very dramatic pattern of fluctuation, buy when it hits a low point for the year but seems to be on its way back up. Ride the rise and the sell before anticipating that the stock will be trending downwards again. Continuing this pattern, while not a foolproof strategy, can almost guarantee a positive return on investments.

Quite frankly, financial advisors and stock traders are some of the only people with intimate knowledge of how the stock market works. While others may have knowledge of specific areas of the stock market, contact a financial advisor in New Jersey who can answer questions relevant to the investor’s specific financial situation for the best outcomes.

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