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  • Writer's picturehooglandaxel

The Stock Market

One of the easiest ways to reduce anxiety in investing is to help people understand that there are not infinite businesses to invest in. All businesses that are able to be invested in by most people are publicly traded companies. These companies have stock that is traded on a stock exchange somewhere in the world. Because a picture is worth 1,000 words or sometimes even more, I am sharing a great visual from one of my favorite websites, Visual Capitalist. It shows you what stock exchanges there are in various countries around the world and how much money is in each of those exchanges. You will notice that in the USA there are only 2 stock exchanges. The NYSE and the NASDAQ. Two is a lot of stock exchanges for a country. Most only have 1. Most stock exchanges have between 300 and 10,000 stocks available to trade. That's it. Not infinite stocks.

The NYSE has around 2,800 stock while the NASDAQ has around 3,300 different companies stocks available for purchase. One of the easiest ways to invest is via index funds. An index fund will purchase all the stocks in 1 stock exchange or a defined subset.

For example the Vanguard US Total Stock Market Fund owns just about every stock on both the NYSE and the NASDAQ. If you just own all the stocks you don't have to worry about picking the right stock. You diversify you risk over many companies and own each stock in proportion to it's weight in the stock market. If the market was only 2 companies and one company was twice as large as the other, and you owned an index fund of that market (of 2 stocks) that index would hold 2x as much stock of the larger company as the smaller company. That is called a market weighted index, which most indices are.

Check out Visual Capitalist, for this picture in full size, as well as their many other great info-graphics. Even consider purchasing their book. I did.

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