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"My employer gives me the option of having money taken out of my paycheck and putting it in an investment. Is this a good idea?"
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Before reading the lesson, you should write down or print these vocabulary words and their definitions. They are concepts and terms that are used every day in the financial world and are relatively simple to understand.
Vocabulary
Bear Market: Slang for when the stock market is in a general, prolonged period of falling stock prices. Opposite of a bull market.
Broker: A person who buys or sells an investment for you [stocks, bonds, commodities, etc.] in exchange for a fee, called a "commission"
Bull Market: Slang for when the stock market is in a general, prolonged period of rising stock prices. Opposite of a bear market.
Dividend: A dividend is a portion of a company's earnings that is paid out to shareholders on a quarterly or annual basis. Most dividend policies are set by the current management.
Exchange: An exchange is a place in which options, futures, and shares in stocks, bonds, indexes, and commodities are traded. The most famous in the United States is the New York Stock Exchange.
Index: An index is a benchmark which is used as a reference marker to which financial performance is measured and compared against. The Dow Jones Industrial Average and Standard & Poor's 500 are examples.
Institution: A word used to describe any company, brokerage house, or entity that is not an individual.
Margin: A margin account lets a person borrow money from a broker to purchase securities. The difference between the amount of the loan, and the price of the securities, is called the margin.
Market Maker: A market maker is a person, brokerage, bank, or institution that maintains a permanent firm bid and ask price on a certain stock. This means that they are standing and prepared at any moment to pay a particular price to buy or sell a stock.
Mr. Market: An investment concept created by Benjamin Graham in the early part of the 20th century. Will be discussed in this lesson.
Sector: A group of stocks that are in the same business [e.g., the "Utilities" sector would include Water and Power & Light companies].
Volume: The number of shares of stock traded during a particular time period.
Introduction
In the last lesson, we established why stocks came into existence. In this essay, we are going to examine how the stock market actually works - everything from what drives stock prices up and down to how stocks are purchased on an exchange. Perhaps more importantly, we will discuss one of [if not the] most important investment concept of all... Mr. Market.
Next page > What makes stock prices fluctuate? > 1, 2, 3, 4, 5, 6, 7, 8, or 9
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