IN THIS LESSON

What a Stock Is

A stock represents partial ownership of a company. When you buy a share, you become a shareholder, meaning you own a small piece of that company. If the company does well, your shares may increase in value.

How the Stock Market Works

The stock market is a place—both physical and digital—where shares are bought and sold. Examples include the New York Stock Exchange (NYSE) and NASDAQ. Prices change based on:

  • Company performance

  • Investor sentiment

  • Economic news

  • Supply and demand

    • When more people want a stock, the price goes up. When more people sell it, the price goes down.

Risk vs. Reward
Stocks can grow your wealth, but they’re not guaranteed. Some may rise quickly, others might drop.

  • Higher risk = Potential for higher reward

  • Lower risk = Often more stable but slower growth
    Diversifying and investing long-term can help manage risk.

The Power of Compound Growth

Compound growth happens when your investment earns returns—and those returns start earning returns too. For example:

  • You invest $1,000.

  • It earns 10% in a year = $1,100.

  • The next year, you earn 10% on $1,100 = $1,210.

Over decades, this adds up significantly. The earlier you start, the more time your money has to grow.

Diversification

Instead of putting all your money in one company, spread it across different:

  • Companies

  • Sectors (like tech, healthcare, energy)

  • Assets (like bonds, real estate)

This lowers your risk if one investment performs poorly.

Dividends

Some companies share profits by paying dividends—regular payments to shareholders. This is passive income you receive just for holding the stock, and you can reinvest dividends to boost growth.

 Research Matters

Before you invest, ask:

  • What does the company do?

  • Is it growing?

  • Are its finances strong?

  • What are its competitors like?

  • Is the stock price overvalued or fairly priced?

Informed investing helps you make smarter, less risky decisions.

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