Through stock market investments, it is possible to amass several hundreds of thousands of dollars in wealth over the long term. To do so, you must learn to monitor stock market prices and valuations. Stock market prices trace their roots to basic corporate structure. As such, stock market performance is a leading indicator for business profits and the strength of the overall economy.
Corporate Finance
At an initial public offering (IPO), a corporation will issue shares of stock to secure financing from investors. After the IPO, investors will trade shares directly between themselves in the secondary market. In exchange for putting up cash, common stock investors receive ownership stakes within the firm. As ownership stakes, shares of stock fluctuate alongside a business' profit outlook. For example, oil company shares should advance as oil prices strengthen. Alternatively, retail company shares will lose value amid recession -- when people cut back on shopping.
Stock Market Indexes
Stock market indexes gauge the performance of a particular sector of investments. In America, the Dow Jones Industrial Average, S&P 500, and Nasdag Composite Index are the three primary stock market indexes. The Dow and S&P 500 are composed of large capitalization stocks, such as Proctor & Gamble, Bank of America, Wal-Mart, and ExxonMobil. Alternatively, the Nasdaq Composite Index largely tracks the technology economy, as it is composed of stocks such as E-Bay, Apple Computer, and Google. Your portfolio of U.S. stocks is likely to be making money on days when the Dow, S&P 500, and Nasdaq are all up by more than 1 percent.
The Stock Ticker
The stock ticker stream price quotes for stock market indexes and individual stocks throughout the day. For individual stocks, the stock ticker stream begins with a ticker symbol, before it presents the price of the stock's last trade and its daily change in market value. For ticker symbol information, you will visit a corporation's official website and click on the investor relation's tab. To monitor the stock ticker and various price quotes, you can watch CNBC, or look up data through Yahoo! finance.
The Economy
Again, stock market prices and indexes are leading indicators for the strength of the domestic economy. A bear market refers to stock market losses of more than 20 percent. A bear market typically occurs amid recession -- when corporate profits are weak. In response to the recessionary bear market, the Federal Reserve Board is likely to lower interest rates. An interest rate cut encourages people to borrow money, purchase big-ticket items, and invest capital within financial markets. Because of these reasons, the stock market often advances after a series of interest rate cuts. When the economy and corporate earnings recover, stocks may post 20 percent gains, which is referred to as a bull market.
Investment Strategy
You will put together a diversified portfolio of stocks, bonds, and bank deposits to manage risks and invest for growth. Stocks are ideal as long-term investments, but can be especially volatile from year-to-year. Meanwhile, your bonds and bank deposits should provide for interest income and immediate access to cash respectively, in most economic conditions. You should increase your exposure to bonds and bank deposits as you age and near retirement.
Stock Market Price Information, Sources:
Yahoo! Finance: Stocks
The Federal Reserve Board: Purposes and Functions
Standard and Poor's: S&P 500
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