The stock market is a system that brings together buyers and sellers of shares or other securities. People trade these shares, also called stocks, in a series of marketplaces or exchanges, which are governed by rules to ensure that trading is fair and transparent for all participants. Today, most stock market activity is conducted electronically over computer networks. These networks are powered by lightning-fast computers that match many investors who want to buy stocks at a given price with other people willing to sell those shares for cash at a transparent, public price. Investors can use these markets to build a diverse portfolio of investments that may help them meet their financial goals, including retirement.
Companies list shares of their stock in the market to raise money that they can then invest in their business or reinvest back into themselves, and individuals purchase these shares hoping they will grow in value over time. People also purchase stocks for other reasons, such as receiving regular income from dividends or having a say in how a company is run because they can vote on corporate decisions based on the number of shares they own.
A diversified stock portfolio can provide good returns over the long term, but there is always risk that stocks will experience short-term declines. To mitigate this risk, many people choose to invest in mutual funds or exchange-traded funds (ETFs) that hold a diversified mix of stocks. You may hear news reports referring to the “stock market” being up or down, but this is usually a reference to an index such as the Dow Jones Industrial Average or S&P 500 that tracks many different stocks.