I truly don’t know. And whenever an expert explains it to me, I get lost. There’s just something about the finance realm, where I can’t retain or grasp the full picture. I’m nearly 40 with a family. I want to be more educated in these kind of things. I would love a simplified breakdown.
Thank you in advance.
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Your friend has a pizza. It’s worth $10. You buy a slice for $1. Another friend really likes pizza, and offers to buy your slice for $2. You agree. Adding up all the slices, the whole pizza is now worth $11, and you made $1 profit.
A pretty good resource to learn about all this stuff is [investopedia.com](http://investopedia.com) They have a tab at the top called “academy” that has educational material for beginners.
In brief though, an investment account is more or less like a bank account accept that you can use funds deposited there to purchase investment assets like shares, mutual funds, etc. The account keeps track of all your purchases and sales and is really convenient because they will also prepare tax documents based on your transactions.
You give money to a company called a broker.
The broker puts that money in an account.
You tell the broker–via the broker’s website– what stocks you want to buy by submitting an ‘order’. The order can be set to execute immediately or when a condition is met.
The broker uses the money in your account to buy the stocks from the market, and then puts those stocks in another kind of account, called a ‘portfolio’.
Later, you can tell the broker you want to sell the stock, at which point they sell it back to the market and put the proceeds in your money account.
Obviously that’s the simplest form of transaction and there are so many others, but that’s the baseline.
Companies can choose to give up private ownership and become “public” companies, meaning the company is owned by shareholders who own shares of the company (AKA have stock). People can purchase stock in the company on the stock market.
If a company is doing well, its ownership becomes more valuable and therefore costs more. If you purchased a share of Google stock when Google was new, it wouldn’t cost a lot. If you kept that share throughout the years as it became more valuable, the stock price would grow, and you could sell it for the higher price.
That’s really all there is to it, the basics at least. The goal is to buy when prices are low and sell when they’re high.
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If you want to get started with investing, my tip is to buy shares of index funds (which is basically a bunch of companies’ stocks together in one.) It helps prevent picking a “losing” stock. I like VOOG, personally. You can open an account with most banks for free and buy some of that stock. Leave it alone or add more money to it, and if the market goes well, you’ll earn money over time. Beware that some banks charge fees to buy/sell, so you could shop around for a bank that has low or no trading fees.
Other thank that, check out YouTube on Index Funds. I won’t say it’s foolproof, but I mean, it basically is.
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