What is an ETF?

  • Tracks an index
  • Lower costs than traditional mutual funds
  • Powerful diversification tool

So you think you have a good grasp on the stock market. You know what a stock is, how a trade is made, and even what IPO stands for.. Let’s increase your financial swagger and explore ETFs.

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What is stock?

Cheat Sheet:

    • Stock is ownership in a company.
    • Stock is sold in units called shares.
    • A person who owns stock is called a stockholder or shareholder.

When you own stock, you own a small piece of a company. Stock comes in units that are called shares. A person who owns shares of stock is called a stockholder or a shareholder. Companies are typically divided into millions, tens of millions, or even billions of shares. For example, Facebook (FB) is divided up into 2.35 billion shares.

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Why own stock?

Cheat Sheet:

  • To own a piece of a company you believe in
  • To make money

When you own stock, you own a piece of the company. This means you own a share of the company’s profits and assets. It also means you have a special relationship with the company that other people don’t have. You even have a say in how it’s run because you can vote, attend shareholder meetings, and more.

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What should I buy?

Cheat Sheet

Here are a few investment approaches:

  • Buy what you know
  • Buy what you think is undervalued
  • Diversify!
  • Buy a fund

People use a variety of investment strategies and philosophies when buying stocks. An investment strategy is a set of guiding principles that help you decide what to buy and when. 

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How do I buy stock?

Cheat Sheet:

  • You buy and sell stock through a brokerage firm.
  • Most people use online/discount brokerages.
  • You can buy stock in whole or fractional shares.

A brokerage firm is a company that is licensed to buy and sell stocks. Brokerages provide you with a connection to the stock market and charge a commission when you make a stock trade.  Some brokerages charge you just to have a brokerage account.  A broker is a stock salesperson.

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When should I start investing?

Cheat Sheet:

  • Start as early as you possibly can
  • Invest for the long haul
  • Don’t wait until you can afford whole shares.  Fractional shares make it easy to start with only a few dollars.

You’ve heard the saying, “Buy low, sell high,” right?  People on Wall Street would love to be able to say, “I’ll buy this stock today because it’s going up tomorrow.”  Unfortunately, that crystal ball doesn’t exist.  No one can time the market, so don’t bother trying!

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What is an IPO?

Cheat Sheet:

  • IPO stands for initial public offering.
  • It is when a company first sells its stock to the general public.
  • In an IPO, a stock begins trading on a stock exchange like the NYSE or Nasdaq.

When a company is young, its owners are usually a small group of people that have a connection to the company (founders, employees, and investors).  The company’s stock is  “privately held.”  Most companies stay that way, but some grow to the point where they sell shares in the company to the general public.  This is called an IPO, or initial public offering.

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