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  • Writer's pictureAustin Jones

Stocks 101 - "What are stocks, how do they make money?"

A friend messaged me saying they had a "stupid" question and not to laugh at them. They asked a great question - what are stocks, how do they make money?

It turns out that about 55% of Americans own stocks, while the other 45% don't. That's almost half. While the gap between stock market stakeholders and people not involved in the stock market has shrunk over the years from normalizing access through smartphones and the internet - still, almost half the country are not stakeholders in the stock market.

To trade stocks you need a bank account and a trading platform like TD Ameritrade, Etrade, Webull or Robinhood. There's plenty of company websites and apps that engage on the stock market. You can also find a local stockbroker near you, a licensed and regulated individual to help you buy/trade stocks.

So what are stocks? They're issued share portions of a company, they can be voting or non voting and all are structured differently per company. If you own voting stock in a company, you can attend their annual shareholders meeting. With enough voting stock, you can influence decisions in the company.

Trading stock is just assuming a company will do good based on forecasting the market. You can buy 1 stock or 100 shares of stock in a company today and sell them after they go up. You can make money in the stock market through buying a stock now to sell for more later. There's "penny" stocks that cost less or more than a penny for newer companies. The most expensive stocks are -as of 10/08/2021-

(1) Berkshire Hathaway at $428,019

(2) NVR Inc at $4,877

(3) Amazon at $3,302

(4) Alphabet Inc [aka google] at $2,801

(5) Booking Holdings at $2,474

Stocks can have dividends. If you have dividends, your shares compound with company profits. So while you don't get a direct share of the companies revenue, they give you a % of more stocks. All companies have different contingencies on their stocks, so be sure to do your homework there.

Whether you bought Amazon stock in 1997 for $1.73 and sold today, or you find the next stock in 2021 for dollars that will be thousands later. You can also buy stock shares of weighted funds like the S&P 500. S&P 500 is indexed to the top 500 largest publicly traded companies. The idea is you minimize risk over more companies while expecting them to continue growing.

It sounds this easy to make money in the stock market, but it's just as easy to lose it. When you sell stocks heald for a period of time, you pay a capital gains tax which can be as high as 20%. So even if a stock goes up 19%, you might not profit selling it. Some trades come with very high risks like options trading. A young 20 year old ended their own life last year (2020) after taking on over $700,000 in debt to an options trade, that he misunderstood on the Robinhood app.

There's different types of stock trading and some are very high risk / high yield like options or futures trading. Non accredited investors should seek the guidance of licensed financial advisors before investing. You freedom to learn the stock market yourself. Trading standard penny stocks is a easy and low risk way to learn, but its easy to get carried away.

Business Goals Agency recommends you read about the history of the stock market. You learn from the people like Warren Buffet who have made the most through trading. You consult with a financial planner to determine how much you can risk. You consult with a licensed stockbroker to determine what you should buy. If you must be a self taught entry level trader, do not risk money you can't afford to lose. We hope this helps explain stocks to you!

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