I Wonder Podcast

How Does the Stock Market Work?

• Curious Minds Media • Season 1 • Episode 40

Share episode

Today's question comes from Tabitha, who's 15 years old. Tabitha wants to know, "how does the stock market work? That's such an important question, Tabitha. The stock market can sound complicated at first, but it's all about people, businesses and how they work together to create value. Let's dive into the history of the stock market, how it helps people build wealth and why concepts like "diversification and "ballots are key to making it work for you. 

What's Your Wonder?
Is there something you’ve been wondering about that you think would make a great episode of I Wonder? We’d love to hear from you! Submit your question through our website, and you might just hear it featured on an upcoming episode!

www.iwonderpodcast.com

I Wonder Podcast:

Hey there, curious minds. Welcome to another episode of I Wonder, the show where we explore the questions you've been wondering about. Today's question comes from Tabitha, who's 15 years old. Tabitha wants to know, "how does the stock market work? That's such an important question, Tabitha. The stock market can sound complicated at first, but it's all about people, businesses and how they work together to create value. Let's dive into the history of the stock market, how it helps people build wealth and why concepts like "diversification and "ballots are key to making it work for you.

I Wonder Podcast:

What is the stock market? The stock market is like a giant marketplace where people buy and sell pieces of companies, called stocks or shares. Owning a share means that you own a tiny piece of that company. If the company does well think, sells lots of products or creates something amazing, the value of your share goes up and you can sell it for more money than you paid for it. But if the company struggles, the value of your share might go down. Think of it like planting a garden. A healthy company is like a plant that grows and bears fruit, but a struggling company might wilt and die. The stock market helps people invest in companies they believe in and companies use that money to grow their businesses.

I Wonder Podcast:

The idea of buying and selling shares in companies goes back hundreds of years. One of the first stock markets was created in 1602 in Amsterdam, where people bought shares in the Dutch East India Company. This company needed money to build ships and trade goods like spices, so it sold shares to investors in exchange for a piece of the profits. This idea caught on and by the 1700s, stock markets had appeared in cities like London and New York. The New York Stock Exchange, which started in 1792, became one of the most famous stock markets in the world. Back then, traders would gather under a buttonwood tree on Wall Street, that's, in New York City, to buy and sell stocks. Today, most trading happens electronically, but the New York Stock Exchange remains a symbol of global finance.

I Wonder Podcast:

The stock market plays a big role in helping businesses grow and giving investors a way to make more money than they invested. Companies sell shares to raise money for things like building factories, creating new products or hiring employees. If the company succeeds, the value of the shares go up and the investors make money. But here's the thing, not every company will succeed. That's why diversification is so important. Diversification means spreading your investments across many companies instead of putting all your money into one. If one company struggles, the others might still do well, which helps to balance things out. One way to diversify easily is by investing in an index fund like the S&P 500. The S&P stands for Standard and Poor's, and it is a collection of the 500 biggest companies in the United States, like Apple, Microsoft and Amazon. When you invest in an S&P 500 index fund, you're buying a little piece of all those companies all at once. Over the last 100 years, the S&P has averaged a return of about 10% per year, which is a great example of how long term investing can grow your money.

I Wonder Podcast:

The stock market isn't always smooth sailing. There have been times when stock prices fell dramatically, like the crash of 1929 that led to the Great Depression. Another big crash happened in 2008, called the global financial crisis, when risky lending practices caused many companies to fail. These crashes were hard on people and businesses, but they also served as important reminders about the need for balance. Investing isn't just about buying stocks. It's also about having a mix of investments, like cash or bonds, that can help you weather tough times. One of the most important things to understand about the stock market is that it rewards ... patience. Stocks can go up and down in the short term, but over decades the market has consistently grown. The key is to think long-term and avoid trying to "time the market by guessing when prices will rise or fall. When you combine patience with diversification and balance, you're setting yourself up for success. These are concepts that you'll learn more about as you get older, but it's always a good idea to seek expert advice when you start investing.

I Wonder Podcast:

We love this question because it's really never too early to start understanding the basics. Here's a fun fact the word "stock comes from the idea of livestock, like cows and sheep. In the old days, livestock was considered valuable property, just like shares of a company are today.

I Wonder Podcast:

So, Tabitha, how does the stock market work? It's basically a giant marketplace where people buy and sell shares of companies, helping businesses grow and giving investors a chance to build wealth. From its beginnings in Amsterdam to the modern day New York Stock Exchange, the stock market has shaped economies and changed lives. With patience, diversification and balance, the stock market can be an incredible tool for growing your savings over time.

I Wonder Podcast:

Thanks again to Tabitha for such a thoughtful question. And remember, if you have a question you're curious about, submit it on our website iwonderpodcast. com and we might just feature it in our next episode of I Wonder. Until next time, stay curious and keep wondering.