Taking Stock: The Basics of the Financial Industry
To the uninitiated, the idea of investing in the stock market can be intimidating.
Anyone who has seen television footage of frantic traders on the floor of the
stock exchange, or has heard bleak tales about stock market crashes, may feel like
throwing up his or her hands and running to the nearest bank to stash that nest
egg in a savings account.
But for 401(k) investors, a little knowledge
about financial markets can take you a long
way -- all the way to retirement with a lot
more money than you'd probably get with a
simple bank account.
While it is important for a 401(k) investor to
have some understanding of how financial
markets work, the beauty of a 401(k) is that
you're actually better off not poring over
daily investment news and worrying about
every minor event on Wall Street. These
short-term issues distract from the real story
-- the long-term performance of your
In this chapter, we will cover some of the
rudiments of finance -- how stocks and bonds
work, how investors function in the financial
markets and how to access financial markets
cheaply and efficiently.