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March 18, 2025 7 mins

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. 

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Episode Transcript

Available transcripts are automatically generated. Complete accuracy is not guaranteed.
I Wonder Podcast (00:02):
Hey there, curious minds.
Welcome to another episode of IWonder, the show where we
explore the questions you'vebeen wondering about.
Today's question comes fromTabitha, who's 15 years old.
Tabitha wants to know, "howdoes the stock market work?
That's such an importantquestion, Tabitha.

(00:25):
The stock market can soundcomplicated at first, but it's
all about people, businesses andhow they work together to
create value.
Let's dive into the history ofthe stock market, how it helps
people build wealth and whyconcepts like "diversification
and "ballots are key to makingit work for you.

(00:58):
What is the stock market?
The stock market is like agiant marketplace where people
buy and sell pieces ofcompanies, called stocks or
shares.
Owning a share means that youown a tiny piece of that company
.
If the company does well think,sells lots of products or

(01:19):
creates something amazing, thevalue of your share goes up and
you can sell it for more moneythan you paid for it.
But if the company struggles,the value of your share might go
down.
Think of it like planting agarden.
A healthy company is like aplant that grows and bears fruit

(01:42):
, but a struggling company mightwilt and die.
The stock market helps peopleinvest in companies they believe
in and companies use that moneyto grow their businesses.
The idea of buying and sellingshares in companies goes back
hundreds of years.
One of the first stock marketswas created in 1602 in Amsterdam

(02:06):
, where people bought shares inthe Dutch East India Company.
This company needed money tobuild ships and trade goods like
spices, so it sold shares toinvestors in exchange for a
piece of the profits.
This idea caught on and by the1700s, stock markets had

(02:29):
appeared in cities like Londonand New York.
The New York Stock Exchange,which started in 1792, became
one of the most famous stockmarkets in the world.
Back then, traders would gatherunder a buttonwood tree on Wall
Street, that's, in New YorkCity, to buy and sell stocks.

(02:50):
Today, most trading happenselectronically, but the New York
Stock Exchange remains a symbolof global finance.
The stock market plays a bigrole in helping businesses grow
and giving investors a way tomake more money than they
invested.
Companies sell shares to raisemoney for things like building

(03:14):
factories, creating new productsor hiring employees.
If the company succeeds, thevalue of the shares go up and
the investors make money.
But here's the thing, not everycompany will succeed.
That's why diversification isso important.

(03:34):
Diversification means spreadingyour investments across many
companies instead of putting allyour money into one.
If one company struggles, theothers might still do well,
which helps to balance thingsout.
One way to diversify easily isby investing in an index fund

(04:00):
like the S&P 500.
The S&P stands for Standard andPoor's, and it is a collection
of the 500 biggest companies inthe United States, like Apple,
Microsoft and Amazon.
When you invest in an S&P 500index fund, you're buying a

(04:23):
little piece of all thosecompanies all at once.
Over the last 100 years, theS&P has averaged a return of
about 10% per year, which is agreat example of how long term
investing can grow your money.

(04:44):
The stock market isn't alwayssmooth sailing.
There have been times whenstock prices fell dramatically,
like the crash of 1929 that ledto the Great Depression.
Another big crash happened in2008, called the global
financial crisis, when riskylending practices caused many

(05:08):
companies to fail.
These crashes were hard onpeople and businesses, but they
also served as importantreminders about the need for
balance.
Investing isn't just aboutbuying stocks.

(05:28):
It's also about having a mix ofinvestments, like cash or bonds
, that can help you weathertough times.
One of the most importantthings to understand about the
stock market is that it rewards.
.
.
patience.
Stocks can go up and down inthe short term, but over decades
the market has consistentlygrown.

(05:49):
The key is to think long-termand avoid trying to "time the
market by guessing when priceswill rise or fall.
When you combine patience withdiversification and balance,
you're setting yourself up forsuccess.

(06:10):
These are concepts that you'lllearn more about as you get
older, but it's always a goodidea to seek expert advice when
you start investing.
We love this question becauseit's really never too early to
start understanding the basics.
Here's a fun fact the word"stock comes from the idea of

(06:30):
livestock, like cows and sheep.
In the old days, livestock wasconsidered valuable property,
just like shares of a companyare today.
So, Tabitha, how does the stockmarket work?
It's basically a giantmarketplace where people buy and
sell shares of companies,helping businesses grow and

(06:51):
giving investors a chance tobuild wealth.
From its beginnings inAmsterdam to the modern day New
York Stock Exchange, the stockmarket has shaped economies and
changed lives.
With patience, diversificationand balance, the stock market
can be an incredible tool forgrowing your savings over time.

(07:15):
Thanks again to Tabitha for sucha thoughtful question.
And remember, if you have aquestion you're curious about,
submit it on our websiteiwonderpodcast.
com and we might just feature itin our next episode of I Wonder
.
Until next time, stay curiousand keep wondering.
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