Is The Stock Market Real?
Amongst my inner circle I am the only person who invests their money heavily in the stock market. Many of my family and friends wouldn’t have any idea how the market works and how people actually make money investing if I wasn’t sharing the information with them. I often push economy talk on others simply because it’s what I know, and importantly it’s valuable content.
Sometimes conversations can start with “Ok what are stocks exactly? And what do all the numbers mean?” It is actually a simpler explanation than people may assume. Stocks are units of public companies and the numbers represent each unit’s price and how good or bad the business is performing. The price going up or down is dictated by how the overall business is faring.
Even if someone isn’t able to grasp the fundamentals of stocks, their next question is usually, “Can you really make money with stocks?” Sure you can. Anyone can accumulate a significant amount of money over time, if they choose to take the time to conduct thorough research before investing. It is not difficult, but it takes emotional discipline to not go over the ledge when things aren’t going your way.
Those who are on the outside of the financial sector, who may not have any experience with the stock market may question the legitimacy of whether it is a real investment or complete risk. It is sometimes misconstrued based on movies or news stories portraying a market crash. Most stock market related movies are based on a period when a market crash occurred, which in turn creates the viewpoint for people to question its validity.
There’s always the occasional skeptic calling it technical gambling. Sure, it can be gambling if you are pouring money into a stock that you have spent zero time researching. That’s just plain bad money habits. I wouldn’t even call that investing. With any category of investing, a smart investor always performs their homework before putting any money on the line.
The Housing Market Damaged Stocks
The 2008 housing market crash was attributed solely to the dysfunction and carelessness of lenders. Mortgage issuers were handing out loans left and right to people who shouldn’t have qualified to receive them in the first place. When a bank issues a loan to a person who is in no position to repay that loan effectively, then the clear result becomes default. Banks and mortgage providers were issuing these ‘subprime mortgages’ by the masses. The benefit for the writers of the mortgages was once a loan was complete, they would receive their fee for obtaining the company another interest paying customer. Essentially, the writers were earning commissions hand over fist.
After countless loans were issued to borrowers who couldn’t feasibly repay the debt, then waves of defaults began to ensue. Banks survive on fees and interest, so when they are not receiving their fair amount the business as a whole is jeopardized. Once banks began to suffer drastically, the financial sector began to feel the pain and caused a rippling effect to the entire economy and stock market.
If It’s Real, Then How Is Real Money Made
First, the skeptics want to know how someone can possibly make money from a company they have zero ties to. There are numerous ways to profit from the stock market. The most common method of investing is the buy and hold approach with dividend paying stocks. Over time, strong and reputable companies see growth in their stock price, which increases the value of each share you may own. Plus, if the company pays dividends, that’s a continuous bonus payment just for being a shareholder. It’s a pretty sweet and simple deal.
The basis of stock investing is straightforward – buy low, sell high.
With any business there has to be a margin in order to make a profit. Consider buying a share of Apple Inc. for $90 today. A month goes by and Apple’s stock price is now at $100. If you choose to sell your share of Apple, then you would have made a $10 profit on the trade (minus any trade fees). Most people buy larger quantities of shares to increase their potential for a higher profit. Investing in highly reputable companies, such as Apple or Coca Cola provide sustained dividend growth and valuable longevity.
The Facts Speak for Themselves
Since the 2008 market crash, stocks have bounced back remarkably. On March 10, 2009, the S&P 500 (the index that is used as a benchmark to gauge the overall performance of the market) opened at $679.28. The lowest price it had opened at since 1996. Today the S&P 500 is priced above $2,100. That is triple its value in just 8 years – a greater than 200% return. The beauty of patient, long-term investing.
The Dow Jones Industrial Average, an index composed of 30 of the most reputable and traded stocks in the market, also took a significant hit from the 2008 market crash. Some of the popular household names like, Walt Disney Corporation, Wal-Mart Stores, The Coca Cola Company, Johnson &Johnson, Exxon Mobil, Microsoft Corporation are included in the Dow Jones.
The same day in March the S&P 500 hit its low, the Dow Jones dropped to its lowest point since 1996 to a dismal $6,547.01. While today the Dow Jones has been hovering around $18,500. That is just over a 180% return and nearly triple its worth. The numbers do not lie and cannot be ignored. There is plenty of opportunity to accumulate substantial amounts of wealth over the long haul with investing in the stock market.