Before diving into stock selection and building a portfolio, it’s essential to understand how the stock market works. The stock market is a marketplace where investors buy and sell shares of publicly traded companies. When you purchase a stock, you’re essentially buying a small piece of ownership in a company. This ownership entitles you to a share of the company’s profits, which may come in the form of dividends or capital gains as the stock’s value increases.

There are different types of stocks investors can choose from, such as common stocks that offer voting rights and potential dividends, or preferred stocks that provide fixed dividends but typically no voting rights. Some stocks focus on growth and long-term appreciation, while others are known for consistent income through dividends.

Stock market indices like the S&P 500, NASDAQ, or Dow Jones track the performance of selected groups of stocks, giving a general view of market trends and economic conditions. While investing in stocks can offer significant rewards, it also involves risks due to market fluctuations, economic shifts, or changes within a specific company.

Having a strong grasp of these basic concepts gives investors the confidence to make informed decisions, manage risks effectively, and create a portfolio that aligns with their financial goals.