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when you watch or listen to the news
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have you noticed that there are a few
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topics that always get covered
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weather sports unfortunately politics
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and news about the stock market while it
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may be easy to understand the weather or
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sports segments
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stock market news can feel like a secret
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code you know some people make a lot of
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money
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somehow but how if the stock market
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confuses you
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you're not alone according to the global
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2014 survey
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two-thirds of adults are not financially
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literate it's not your fault schools
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don't teach this stuff
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but the good news is you can understand
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the basics quite easily
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first what even is stock
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imagine taking a company and breaking it
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into a lot of tiny pieces
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a stock is one of those small pieces or
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a share of a company and when we say a
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lot of tiny pieces
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we mean a lot amazon for instance is
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made up of over 500 million shares
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when you buy a stock you're buying one
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or more of those pieces of a company
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for the most part you can only buy
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shares of public companies
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a public company is one whose shares are
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available on a public market
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called a stock market while many large
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national companies
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are public not all of them are in fact
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of the approximately 600 000 u.s
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companies
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with at least 20 employees less than one
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percent
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are public for example say you really
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like candy and want to live out your
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willy wonka fantasies
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by owning a piece of a candy company if
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you want to buy shares of mars the
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company behind
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m m's snickers and skittles too bad it's
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a private company
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so you can't buy any shares of it
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instead you might have to settle for
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hershey's which
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is a public company and so offers its
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shares in the stock market
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now that we know what a stock is let's
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go back to the news when you hear
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the stock market went up that means that
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overall the price for pieces of public
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companies increase
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this doesn't mean every company share
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went up just that across
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the whole stock market people generally
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paid more for pieces for a company today
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than they did yesterday but when you
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hear the opposite
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the stock market went down that means
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that on a whole
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the traders paying less for stocks today
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than they were yesterday
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you may hear things like the dow was up
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today or
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the s p was down today but what does
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that mean the dow and the s
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p also known as the s p 500 are bundles
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of stock
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that are actually considered to be
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representative of the stock market as a
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whole
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think of it as an appetizer sampler
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platter with some pieces
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a lot of different things the dow is a
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collection of 30 different companies
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while the s p 500 reflects the shares of
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500 different companies
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while people often use the dow or the s
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p 500
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as stand-ins for how the stock market is
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doing it is important to realize the
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stock market
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is not a stand-in for how the economy is
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doing this may be counterintuitive since
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many of us associate the economy with
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the stock market
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but they are different things the
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economy is a big and complex system
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so big so complex that it's actually
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hard to even define
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encompasses different metrics like the
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employment rate the prices of goods and
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services
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taxes and a myriad of other factors all
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interrelated and affecting one another
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because the economy as a whole is so big
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and complex but the stock market is
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relatively easy to understand
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the dow goes up dow goes down many
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people use a stock market
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as a substitute in their minds for the
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economy as a whole
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think of the entire economy like a
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football stadium the stock market is
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like the scoreboard
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it tells you a lot of useful information
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about what's going on inside the
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football stadium
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the score players stats the number of
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people in attendance
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but you never say the entire football
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stadium is the scoreboard
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it may be important part of it but
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there's so much more to the economy
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than the stock market in fact there are
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times when the stock market and the
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economy can become disconnected for
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instance during
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the 2020 coronavirus pandemic the stock
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market is reaching new highs
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millions of americans however are
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expecting financial disaster
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how can that be the answer is in the
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fact that a booming stock market
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only directly benefits those who own
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stock according to the new york times 84
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of stock owned by americans belong to
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the wealthiest 10 percent of households
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that means when the stock market's doing
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well those at the top
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benefit the most according to one of the
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most influential economists of the 20th
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century
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milton freeman a ceo is an employee of
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the owners of the company
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i.e the shareholders this means her only
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responsibility is to maximize profit
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since profit is revenue minus cost her
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job is literally to keep costs
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down a major cost for many companies is
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salaries and benefits for its workers if
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a company were to announce
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raises for all their employees it would
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certainly benefit the finances of those
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employees
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however it would make the cost of doing
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business to go up so according to
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friedman in order to do her job and
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increase stock prices
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a ceo would look to keep employees
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compensation down
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so even if you work for a company whose
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stock prices is going up
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it doesn't necessarily mean your
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economic fortunes are improving
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so how do average people like us get
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stocks and how do you make sure you make
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money and don't lose money there's no
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shortage of companies or apps that will
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allow you to buy or sell stocks
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together called trading do some research
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before picking one
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as many may have fees that outweigh any
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money you expect to gain by
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trading once you set up a stock trading
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account called a brokerage account a
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trading a stock is actually pretty easy
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a simple stock trade can be broken down
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into three steps
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buy one or more shares at the price the
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market is selling them
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two wait some amount of time it could be
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minutes
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days months years or even decades
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during this time the price of the stock
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will change for all kinds of reasons
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that people spend their entire lives
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trying to understand
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three sell those shares at the price the
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market is buying them
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that's it there are more complicated
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ways of investing into the stock market
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but this process is a basic one buy
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something
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wait until the price change and then
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sell it you want the price to go up
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after you buy something
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but it might go down to make money
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hopefully you can follow the
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conventional wisdom of
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buy low sell high you might be wondering
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how do i know if the value of a stock is
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going up or down
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unfortunately you don't that's sort of
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the whole point of the stock market when
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you buy a stock you're essentially
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making a bet that over time
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the stock will become more valuable than
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it was when you bought it
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prices however can go down meaning you
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might find yourself selling your shares
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for less than you paid for them
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that's how you lose money since no one
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knows a future in general it's pretty
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foolish to think that you can time the
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stock market whenever you hear someone
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with flashy stock market tips or
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no lose trading strategies they're
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almost certainly lying
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and trying to sell you something no one
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knows how to make guaranteed money in
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the stock market if they did
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they would keep the secret to themselves
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and spend all their time making money
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that way
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it's similar to when you see scam
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exercise products advertised
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that promise easy results it's just for
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suckers
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the tried and true way to make money in
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the stock market is slow
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boring investing so you have money when
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you're older buy some stocks and don't
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sell them again for ages
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even if the market goes down even if the
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market soars
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a good way to do this is with retirement
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products such as iras and 401ks
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over the long run the stock market has
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trended upwards
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which is why a steady unexciting
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investment plan is usually the best
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one again like exercising products if
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you want to get healthier
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the tried and true way is consistent
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diet and exercise
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not the quick gimmicks to wrap things up
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while the basics of the stock market are
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easy to understand
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buy wait sell before you do any
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investing it's important to do much more
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research than this video provided
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talk to qualified financial planners
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people who you trust to be looking out
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for your financial well-being
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and not trying to make a quick buck
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there's no rush
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the stock market isn't going anywhere
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and neither are the news segments
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reporting on it
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hopefully however now you understand a
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bit more of what those stories mean
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[Music]
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you