Instruction: How does the Stock Market work?

Response: The stock market helps companies raise money to fund operations by selling shares of stock, and it creates and sustains wealth for individual investors.

Companies raise money on the stock market by selling ownership stakes to investors. These equity stakes are known as shares of stock. By listing shares for sale on the stock exchanges that make up the stock market, companies get access to the capital they need to operate and expand their businesses without having to take on debt. In exchange for the privilege of selling stock to the public, companies are required to disclose information and give shareholders a say in how their businesses are run.

Investors benefit by exchanging their money for shares on the stock market. As companies put that money to work growing and expanding their businesses, investors reap the benefits as their shares of stock become more valuable over time, leading to capital gains. In addition, companies pay dividends to their shareholders as their profits grow.

The performances of individual stocks vary widely over time, but taken as a whole the stock market has historically rewarded investors with average annual returns of around 10%, making it one of the most reliable ways of growing your money.