Investing Academy: introduction
Originally launched in 2018, we’ve given the Moneybox Investing Academy an exciting refresh. We get it, investing can seem intimidating at first. So, in the next eight lessons, we’ll take you from the stock market basics through to asset classes and tracker funds, before finishing with key concepts like compounding and pound cost averaging to help you invest like the best and make your money work harder. For our first lesson, we’re stripping it back to square one to take you through what the stock market is and how it works.
What is the stock market?
The ‘stock market’ is a catch-all term that’s used when people talk about buying or selling stock in publicly listed companies like Google, Apple and Tesla. 📈 The stock market isn’t a physical place. Instead, it refers to a global network of investors who interact with each other to buy and sell stock in publicly listed companies.
What is a stock?
A stock is a slice of ownership in a company, and when you buy a stock you’ll be able to enjoy that company’s success, or share in its failure. You might sometimes hear the term ‘stock’ used interchangeably with ‘shares’ or ‘equities’, but they all mean the same thing.
The total amount of stock that a company has in circulation and the current stock price is how company valuations are calculated. 💲 This is known as the company’s market capitalisation (market cap), and to figure it out, you simply multiply the total number of shares that a company has by the current price per share. 📊 But, you don’t need to work this out for yourself. If you type a listed company’s name followed by ‘share price’ into a search engine, you’ll usually get a lot of information about the company – including its current market cap.
How does the stock market work?
The stock market works by letting people interact directly with publicly listed companies. If companies are doing well, more people might want to buy the company’s stock – which can push the share price up as demand increases and supply falls. 📈 Companies can use the money from the stock sales for different things including team growth, marketing and product development.
However, if a company is performing badly, people might choose to sell their shares, which can cause the share price to drop. We go through what makes the stock market rise and fall in Lesson 2. 📉
What is a stock exchange?
Stock exchanges are where stocks in public companies (and other financial assets) are listed for investors to buy and sell. They pair people who want to buy stock with people who want to sell the same stock. Some examples include the New York Stock Exchange (NYSE) in the US, or the London Stock Exchange (LSE) in the UK. 🏛️
The majority of investing on stock exchanges is done through online investing providers. So, to get exposure to companies that are listed on the LSE, you just need to have an account with an online provider – like Moneybox. With us, you’ll be investing in tracker funds which have a range of unique benefits (there’s more on tracker funds in Lesson 4).
Stock exchange examples
- London Stock Exchange (LSE) – one of the oldest stock exchanges in the world and the largest in the UK.
- Euronext – the pan-European stock exchange group, Euronext is based in Amsterdam but there are also exchanges in Brussels, Dublin, Lisbon, Milan, Oslo and Paris that are under the Euronext umbrella. Many of Europe’s largest companies are listed on Euronext exchanges.
- New York Stock Exchange (NYSE) – the largest stock exchange in the world in terms of the market cap of its listed companies.
- Nasdaq – another New York-based stock exchange. It’s the second largest in the world, and it’s most often associated with tech stocks, although other companies can list on it.
- Tokyo Stock Exchange – the largest stock exchange in Asia by the total market cap of its listed companies.
What is a stock market index?
A stock market index measures the performance of a group of shares or other financial assets that are listed on a particular stock exchange. For example, the London Stock Exchange (LSE) is the main stock exchange in the UK, and the FTSE 100 is the stock market index that tracks the performance of the 100 largest companies that are listed on the LSE. 🌍
When people talk about stock market performance, they’re usually talking about the performance of a stock market index. So, if the FTSE 100 is going up, people might say that the UK stock market is “doing well”, or that “the economy is healthy”.
Stock market index examples
- FTSE 100 – tracks the performance of the 100 largest companies listed on the LSE.
- S&P 500 – tracks the 500 largest companies listed on US stock exchanges. This includes companies that are listed on both the NYSE and the Nasdaq.
- Nasdaq 100 – tracks the 100 largest non-financial companies listed on the Nasdaq, which are often US tech stocks.
- Dow Jones Industrial Average – tracks the performance of 30 well-known companies that are listed on US stock exchanges – these companies are selected by a committee.
- Nikkei 225 – tracks the 225 largest companies listed on the Tokyo Stock Exchange.
Question one: Which of the following is a stock market index?
- London Stock Exchange
- Nasdaq 100
Question two: Which of these is a stock exchange?
- Nikkei 225
- CAC 40
Question three: True or false: ‘stock exchanges are where shares (and some other financial assets) can be bought and sold’.
Scroll down for the quiz answers!
🎓 Ready to see why the stock market rises and falls?
Question one: Nasdaq 100
Question two: Nasdaq
Question three: True
All investing should be regarded as long term (minimum five years) and historic performance isn’t a guarantee of future returns. The value of your investments can go up and down, and you may get back less than you invest. We don’t provide investing advice, and investors should make their own investment decisions or contact an independent adviser.