If your childhood was anything like mine, your memories of morning school drives are probably filled with NPR as the background “music”. And you probably remember these exact words from those morning drives, “S&P 500”, “NASDAQ”, “Dow Jones”. Now if you really are like me, you for some reason thought the NASDAQ was somehow relevant to Nascar, and that was about as far as you thought about this. If we’re being completely honest here, these same type of memories are now my present, except that I’m sure the NASDAQ is not referring to Nascar. So what is it referring to?
Well basically, each of those three things are market indexes. What that means, is that each of those market indexes measure the average value of all the stocks within that index. For example, the NASDAQ is know for have thousands of companies within it, but it’s also known for being an indicator of how the tech market is doing. This is because the majority of companies within the NASDAQ index are tech companies. So long story short, these weird terms you’ve been hearing forever? They’re just market indexes that represent the stock value of the companies within them.
Stocks and ETFs
So if you’re thinking of investing, you might buy a stock. A stock is when you purchase a part of a company. You are then considered a shareholder. Congratulations. That stock is then able to be traded or exchanged (i.e. sold) with other people on the market. Investors want to buy a stock at a low price and sell it at a higher price to realize a ‘gain’–i.e. Make money.
In the investing world, another option you could explore, are Exchange Traded Funds (ETFs). These are similar to a stock that can be traded and exchanged on the market. The difference with a stock is that when you purchase an ETF you are not buying a part of a single company but you are buying a part of the indexes we discussed above.
This month I will start my investment journey and I’m taking you along. Choosing to invest in ETFs makes more sense for me since ETFs are less risky than stocks. An index spreads your risk over thousands of companies versus just one—and we all know the likelihood a thousand companies fail all at one time is significantly less than a single company going under. So this allows me to start exploring investing in an entire index versus just one company. As a beginner investor low-risk investments are important to me. I don’t want to be in over my head and I want something manageable but effective.
In order to facilitate this investment journey, I am going to be using Stash. Stash is an investment app accessible on your phone and awesome because it is tailored for beginner investors. First you create a profile that reflects who you are and then you can choose from their selection of ETFs. they have categories for activists, travel, trends, and the tech guru. Stash guides you through the process and makes investing in an ETF less intimidating than it may sound. I will walk you through the whole process as I go through it, so stay tuned for the next update!
Image credit: Mirjana Jesic