STOCK MARKET
The stock market is the backbone of the financial system and the United States economy. The stock market is where institutions, professional traders, and individuals like you buy and sell publicly traded companies. There is an inherent risk with investing in the stock market, but it is generally viewed as a means for financial growth and wealth accumulation. Financial literacy is necessary to navigate the stock market safely.
THE BASICS
Stocks represent ownership in a publicly traded company. The people who own those stocks are called shareholders. Ticker symbols represent stocks. Some stocks pay dividends which are a distribution of the company's profits to its shareholders, typically in the form of cash or additional shares of stock.
RISKS AND RETURNS
There is risk associated with investing in the stock market. Understanding what you are investing in before you allocate funds is important to manage risk and spread investments across different companies. Investing in index funds (S&P 500, DOW, NASDAQ) typically reduces risk as these funds are composed of multiple companies.
HOW CAN I INVEST?
Multiple banking applications that allow you to trade stocks. These applications are simple to use and available in most app stores. Watching your wealth grow in real-time can be a lot of fun.
There is always risk involved with investing in the stock market. Typically the higher the reward, the higher the risk, and visa versa.
The stock market is influenced by various factors, including economic indicators, geopolitical events, corporate earnings reports, and investor sentiment.
The stock market has historically provided higher returns compared to other investment options over the long term, but it also carries inherent risks, as stock prices can fluctuate based on the factors previously mentioned.
SOME STEPS TO TAKE BEFORE YOU INVEST
Maintain a Comprehensive Budget: Your budget should account for every penny of your income and account for every projected expenditure. Your budget should end at "zero" if adequately completed. Create a detailed plan that outlines your spending priorities, including essential items like fuel and groceries, which can be projected reliably. Check out our sample budget in the "What should I be doing?" section, and explore our "Learn how to live cheaper" resources for insights on cutting down your grocery and other expenses.
Have an Emergency Fund: You must have an emergency fund. We recommend a $500 fund for single Service Members and a $1,000 fund for families. For more, visit our "What should I be doing" page.
Pay off your debts: The average annual return of the stock market is 10%. It is essential to understand that this is an average over time, meaning some years it hits over 10%, and others have a negative return. Money invested in the stock market is typically made so for long-term growth. If you have a credit card or a personal loan, you are likely paying more in interest on the debt than you would in the stock market- meaning you are losing money because of interest! Pay off that debt! Investing is ok if you have a mortgage or a low-interest rate for a financed vehicle (>4%). With that said, true financial freedom means you do not owe anyone money.
Set financial goals and asses your risk tolerance: Set your financial objectives, whether saving for retirement, buying a home, or funding your children's education. Establishing clear goals helps determine the investment timeframe, risk tolerance, and the type of investments that align with your objectives.