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What is the stock market?
(lemmy.world)
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this post was submitted on 10 Oct 2024
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A stock is a piece of the deed or title or charter or whatever that is the essence of the company as a piece of property.
You can buy that piece of the property for a value which fluctuates based on the value of the company as a whole, your fractional piece is tied to the value of what it's a piece of.
The stock market is the cumulative eco-system in which people are buying and selling stocks in different companies based on fluctuations in value of different companies at different times.
The name of the game is to basically always be selling just before a downturn and always be buying just before an upswing, so that the money you've bought the stocks with is always growing, because your bought stocks are always growing in value, until you decide to sell them.
There is a lot of other factors to it but that's basically it. It's a system in which you temporarily buy small pieces of companies for the purpose of selling them once they're more valuable than they were when you bought them.
If you're thinking that sounds a lot like crypto, you're not wrong, but the difference is that stocks actually have a modicum of regulation that are meant to keep people from getting fucked over quite as hard as crypto has done. Doesn't mean that premise is always lived up to, just look at 2008, but overall the stock market represents the safest form of investment you can make other than stuff like federal investments or buying a home that you intend to pass along to your kids.
Stocks also represent a company's net asset value. So, unlike crypto, a shareholder would be compensated by the sale of a company's assets in the event of its liquidation. Crypto has no such safety net.
The winning strategy for us who do not want to gamble but save some extra for our retirement is to stop looking at the daily values, and invest the same amount monthly to a low cost ETF, such as VUAA.
Now, the S&P 500 has been coming up about seven percent yearly if you look into it for a longer period of time. Repeating the monthly investment until you retire is a good way to get enough to retire comfortably.
This is a pretty solid explanation.
To add some context, you used to be guaranteed a portion of profits in the company but that doesn’t happen now. Some stocks pay dividends but unless you own a lot of those, it won’t do you much good. Owning stocks now, does give you the right to participate in voting. Mark Zuckerberg owns voting control of Meta, meaning he can’t be removed from his position by shareholders because he owns enough votes (shares) that he can’t be overridden.
Another thing you hear people talk about in relation to stocks is capital gains tax. Taxes on stock depend on how long you owned the stock. Less than a year, you get charged a higher tax rate on selling because you’re flipping it for profit; short-term vs long-term gains. Those taxes is only applied to the profits of the sale.
Stocks are assets, however, and investors can borrow against it without selling in the same way you can get aa home equity loan against your house without selling your house. Since they aren’t actually selling the stock, they aren’t paying taxes on those profits.
Thats why some politicians, like Kamala Harris, have suggested a tax on unrealized gains (profits on stocks that haven’t been sold yet). It would be a way to close the loop hole of billionaires not paying their fair share. It sounds kind of shitty to pay taxes on assets you don’t have in hand until you realize how stocks are used to avoid some taxes.
There's at least one informed answer...