Anyone with a television or radio knows that the stock market can be a bit of a roller coaster. If you want to invest, though, you need to know why a given stock might rise or fall. In the simplest of terms, it will come down the three reasons below.
It is a Market
Perhaps the first thing to understand about the stock market is that it is just that – a market. People are constantly buying and selling stocks, which means that prices are going to fluctuate. When more people are buying, more people are willing to pay more. When more people are willing to pay, the price goes up. When more people sell, the price drops – thus sending the price down. The market will fluctuate all day, often without anything major happening. Understanding that this happens is a great way to understand how an investment works and whether or not it will give you the financial stability that you desire.
Another factor in the market is speculation. The shape of things to come is often important for investors, so many look for ways to predict the future. If things look like they will go well in a sector, people will tend to buy more. Likewise, a poor forecast might lead people to sell quickly. These speculations may have little relation to reality, but they will cause stock prices to rise and fall. Many investments that are prone to serious speculation might not provide the financial stability that you want in an investment.
Finally, there is the simple matter that stocks do still represent a share in a company and a stake in its value. When a company does well, its stock has a higher value. When it does poorly, the stock value drops. Certain companies that provide things that people need tend to have fairly stable stock records. Other companies that have fad products or products tied to a certain sector of the economy may have more fluctuations. Finding out what pays out more is a matter of carefully weighing risk versus reward over the long and short term.
If you want to invest, you need to understand why stock prices rise and fall. Every investment carries with it some form of risk, but knowing why that risk occurs can help you to keep your money safe. In the end, financial stability might be the matter of picking the right stock at the right time.