{"id":210082,"date":"2024-02-21T02:36:14","date_gmt":"2024-02-21T00:36:14","guid":{"rendered":"https:\/\/ceoworld.biz\/?p=210082"},"modified":"2024-02-21T02:36:14","modified_gmt":"2024-02-21T00:36:14","slug":"how-do-stocks-actually-work","status":"publish","type":"post","link":"https:\/\/ceoworld.biz\/2024\/02\/21\/how-do-stocks-actually-work\/","title":{"rendered":"How Do Stocks Actually Work?"},"content":{"rendered":"

The stock market is a huge store of wealth.\u00a0 As of January 1, 2024, the U.S. stock market was valued at $50.8 trillion<\/a> (combining the New York Stock Exchange, Nasdaq, and Over The Counter U.S.).\u00a0 That\u2019s enough money to pay off the federal government\u2019s massive debt burden and still leave nearly $17 trillion left over.\u00a0 So why does so much money find its way into stocks?<\/p>\n

In short, business owners need cash to run their businesses.\u00a0 The Mom n\u2019 Pop shop down the street might turn to friends and family for some funds.\u00a0 A company can go to a bank and get a loan or line of credit.\u00a0 Other entrepreneurs will look to outside investors like venture capitalists or private equity sources.\u00a0 All of these methods represent a quid pro quo deal, the business owner gets money, and the financier collects interest on debt repayments or provides funds in exchange for ownership of the company.\u00a0 The latter deal, sharing ownership, introduces the concept of stocks.<\/p>\n

Business owners may choose to raise money through an Initial Public Offering (IPO).\u00a0 \u201cGoing Public\u201d is often seen as the last and grandest stop on the fundraising train.\u00a0 An IPO essentially breaks up the company into pieces called \u201cshares\u201d which are then sold to investors as \u201cshares of stock\u201d.\u00a0 These investors are then referred to as \u201cshareholders\u201d who literally own a piece of the company and share in the successes and failures of the enterprise as well as rights such as voting on its board of directors and other important matters.<\/p>\n

How Stocks Make Money<\/strong><\/p>\n

Investors can make money by owning stocks primarily in two different ways.\u00a0 First, when a company earns a profit they may reinvest in the business for future growth, pay down debt, or reward their investors in the form of a dividend.\u00a0 Dividends can provide investors income while they continue to hold onto their stock.\u00a0 Second, the stockholder can hold their shares for a period of time while the company grows and its stock price increases, then sell it for a higher price in the future, creating a capital gain.\u00a0 This two-pronged benefit is sometimes compared to being a landlord in real estate, in which the owner can receive rent payments while their investment (property) appreciates in value.<\/p>\n

How to Track Stocks<\/p>\n