To me, stocks were always an intangible concept handled by old white men in ugly black shoes. I probably could’ve lived a fulfilling life without ever deciphering what S&P meant. But, when stocks crashed in March 2020, I felt the ghost of intangible income nudge me into downloading Robinhood, the trendy app for commission-free trends. I ignored that ghost for many months until finally, that nudge felt more like a push. I invested $30 in Apple, aka a fortune for a broke college student.
I had no idea what I was doing. It was like driving without a GPS in the dark during a rainstorm. Since I didn’t grow up around a stockbroker and never lived in New York, none of the words were familiar to me. Shares? Am I sharing stocks? Dividends? Now we’re dividing instead of sharing?
Luckily, by the time everyone was freaking out about GameStop, I was a seasoned cub on Wallstreet. Now, even though I have no qualifications whatsoever, I’ll give the crash course on what the hell stocks are.
Let’s start with the basics: stocks and shares
A stock is a type of investment. It represents owning a share. When you purchase a stock, you get a share (or part of a share), and now you own a small part. To simplify, pretend a company is like a cookie. You give the cookie some money, so now the cookie can afford a chocolate chip. Thanks to your small investment, the cookie now tastes better and is therefore worth more. Now, your initial investment of one chocolate chip is also worth more because everyone wants a piece of the cookie. You can sell your share of the cookie and thus afford to invest in someone else’s oatmeal cookie (because they’re the new hip thing for vegans). The best part is you didn’t have to bake the cookie to make money. You just watched out for your chocolate chip.
It’s important to note that there is always a risk with investing. You could lose your chocolate chip because the cookie wasn’t baked properly and didn’t sell well. Or, you could risk the biscuit because you’re smart enough to realize that an extra chocolate chip never hurt anyone.
Where and when
“The Stock Market” actually refers to one of the major stock market indexes, like Dow Jones Industrial Average or the S&P 500. These indexes are like cheat sheets that tell you how well the stocks are doing. Since no one wants to wake up before 9:30 a.m. and look at every single stock, it’s a useful index. The stock market is no longer a physical market where you could go for cute pics, but it does work like an auction house for buying, selling and overall trading of stocks. Both the New York Stock Exchange and the Nasdaq (global electronic marketplaces) are open from 9:30 a.m. to 4 p.m. on a Monday through Friday basis. You can access these marketplaces through apps like Robinhood and Charles-Schwab. Also, with a full-time job, you can invest through a 401k or a retirement plan, but downloading an app sounds way easier.
What is S&P 500?
The S&P 500 is the stock market index that takes the top 500 U.S. companies to reflect how well stocks are doing. According to NerdWallet, “Over $11.2 trillion is invested through the index, with these 505 stocks representing about 80% of the total U.S. stock market’s value.” When you invest in the S&P 500, it’s not an investment into the actual index because, well, you can’t do that. What you are doing is figuratively investing in the 500 companies that make up the S&P 500.
S&P 500 is a solid long-term stock to invest in, so if you’re scared to start, start there. The five-year return (how much money you’ll make over five years) is 16.14%. So, if you invest $10 today, you’ll have $11.61 in five years. It doesn’t seem like much, but passive income can be a reliable source of money when done correctly. The easiest way to buy a stock is to go into an app like Robinhood, deposit funds, type in a company like Apple and put in any amount. The trade will be executed during market hours or after your funds become available. It’s as easy as online shopping, and you don’t even need a cart.
What is cryptocurrency?
Cryptocurrency is a beast of its own, so I’ll keep it short. According to Forbes, “Cryptocurrency is a medium of exchange that is digital, encrypted and decentralized. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency.” It’s like a bunch of kids on the internet running around with money that they made up. Cryptocurrency is open for trade at any time. It’s riskier than traditional stocks, so be careful when making the mad dash to buy some Dogecoin. Fun fact: Dogecoin was created as a joke.
For those of you that made it to the end, congratulations! You’re well on your way to being a wolf on Wall Street. If this article inspired you to start investing, just remember to start small and learn your stocks. You got this!
P.S. If you want to know about what happened with GameStop, check out this article from the Independent.