The basic concept behind the stock market is simple. A stock is a piece of a company, and people buy and sell stock to and from one another on a Stock Exchange, like the NYSE or NASDAQ (learn more in the Education Section).

SogoTrade acts as the broker, or the intermediary between yourself and the stock market. You give us the money, and we buy and sell the stock for you. We also hold the money and the stock in your name.

Stocks are traded on exchanges, like the NYSE, NASDAQ and AMEX. There are two main types of exchanges, physical and virtual.

The physical exchanges are the ones pictured in movies and on CNBC, where person with the blue jackets wave about pieces of paper and yell out prices.

The virtual exchanges are actually linked computer networks, and the entire trading process takes place electronically.

The NYSE and AMEX are physical exchanges, while the NASDAQ is a virtual exchange.

The reason stocks are traded on exchanges is that it is the best way to facilitate transactions. It would be fairly slow to place classified ads in your local paper to buy or sell stock. The exchanges act as intermediaries between the buyers and sellers. Typically, electronic exchanges are more efficient, which is why even the face-to-face exchanges normally have electronic transaction services.

Risks
The risks of investing in the stock market are always present. There is Economic Risk, because the economy can turn south, no matter how well your stocks perform individually. There is Market Value Risk, which simply means that your stock drops in value for its own reasons. There is the risk that your broker, or whoever holds your stock can go out of business (although you are protected by the SIPC for $500,000, out of which $100,000 is cash and $400,000 is stock).

Advantages
The advantages are present as well. The stock market has historically gone up over the long term*, taking long term, conservative investors right along with it. There are tax advantages to investing, and your money works for you, instead of the other way around, since it generates its own interest through compounding. Moreover, if you do not invest, the value of your money slowly deteriorates due to inflation.

The old Wall Street saying is that you should never invest in anything you will lose sleep over. By following a conservative, long-term investment strategy, you are likely to reap the benefits of patience and discipline when it comes to investing in the stock market. *As based on annualized total return of the S&P 500 from 1926 through 2004.

Bull Market
The bull is probably the image associated most frequently with the stock market. There's even an anatomically correct statue of El Toro about two blocks from the NYSE, (usually surrounded by camera-wielding tourists, oddly enough from behind). The bull symbolizes supreme confidence, and healthy rising markets in good economic times.

Investors who have an optimistic outlook, and believe that stocks will rise, are commonly called bullish investors, or bulls This is great in a rising market, but when the economy turns south, it may be prudent to adopt a different strategy.

Bear Market
When the bulls run away, the bears will play. Of course, there's no bear statue anywhere near any stock exchange, and for good reason. A bear market means that the economy is bad, stocks are dropping, and jobs are scarce. Investors who have a pessimistic outlook, and believe that stock prices will fall, are commonly called bearish investors, or bears.

There are many ways to get by in bear markets. You can sideline your investments, buy more to anticipate the return of good times, or use a strategy called short selling, which involves borrowing stock, selling it, and then buying it back at a lower price to make a profit. One of the best ways to deal with bear markets if you are investing for the long term is to Dollar Cost Average your investment.

Historically, the market has returned an average of 10%*, which beats 95% of all mutual funds over the long-term. Since mutual funds charge fees, even a fund that matches the market return will still return less over the long term.

You can buy a few stocks hoping to beat the market, but that is risky, since the opposite may happen. In short, you want a safe, proven strategy that is easy to use, and doesn't cost that much. If you can match the market, and generate an average of 10%* a year, then with compounding interest, you can make a substantial return.

Therefore, a good strategy would be to invest in the actual stock market. But how would you be able to buy all the stocks in the market at once? Also, why don't you just buy the best ones? Of course, it would be difficult to weed out the best performers.

Luckily, all this work has been done for you. In order to track the market, you can invest in market indexes. Indexes are simply a collection of stocks that represent the market, usually the best ones. Some well-known indexes are the S&P 500, which are 500 stocks that represent a bunch of different markets, and the DJIA, which represents the top 30 industrial stocks on the New York Stock Exchange.

But how do you buy indexes? A good way is through index-tracking Exchange Traded Funds, or ETFs. ETFs trade just like stocks, and are easily bought and sold. ETFs do not have managers, loads, or administrative fees. Instead, an index-tracking ETF is simply a stock that tracks a market index like the S&P 500 or the DJIA.

This is where the principle of Dollar Cost Averaging comes in. Since you are always investing the same dollar amount, you buy more when the market is low, and less when the market is high. Therefore, you are simply averaging your investment to track the ETF, which is tracking the market index, which is tracking the market. To make a long story short, you are literally buying the market! *As based on annualized total return of the S&P 500 from 1926 through 2004.

The three most popular ETFs are QQQQ (the Nasdaq-100 Index Tracking Stock), SPY (the S&P 500 Index Tracking Stock), and DIA (the Dow Jones Industrial Average Index Tracking Stock).

The QQQQ trades an average daily volume of almost 100 million shares per day; SPY trades an average of 60 million shares per day, while DIA trades over 6 million shares per day. These three ETFs alone provide a multitude of long-term investment opportunities, all with lower risk than individual stocks.

With SogoTrade, the best way for beginning investors to start is to go over our Education Section, which will give you a good idea of what the market is, and how you can take advantage of a long term, conservative, low cost strategy. Beyond that, here are a few simple things to remember:

Start Early
The key to building wealth is starting early and investing regularly. With the power of compounding, the earlier you start, the more you can generate in the ending years. Regular investments, no matter how small, can grow into a very sizable amount over the long term.

Let's consider an average example. John decides to start investing for retirement when he turns 45. He is financially stable at that point, and can afford to contribute sizeable amounts on a regular period. Lets say he can afford $10,000* per year. At an average annual return of 10%, his retirement plan grows to over $600,000 by the time he reaches 65, or retirement age.

But what if he had started earlier? As soon as John graduated college, when he was 22 years old, he decided to put away $3,000 every year until he reached 65. That's just below $60 a week. The total amount he put in over 43 years would be about $130,000. How much would he have at retirement? Well, at a 10%* return, over 43 years, John would have almost two million dollars!

Diversify
There are many opinions as to how you should invest your money, and almost all of them agree on one thing: diversification. The concept of diversification can be summed up in one sentence; do not put all your eggs in one basket!

This means spreading your investment out across different sectors and funds. That way, if one sector or fund performs poorly, your entire portfolio will not be affected as dramatically. The risk exposure to a particular investment is reduced, and the total overall risk of your portfolio decreases.

To illustrate, let's assume that your portfolio is not diversified. You invest $10,000, and allocate 80% into a "hot" stock, with only 20% into an index-tracking ETF. If the hot stock turns real cold, you could lose up to $8,000.

However, if you diversify, for example 25% into the hot stock, and the remaining 75% into multiple index-tracking ETFs, you only risk $2,500 compared to the $8,000.

Dollar Cost Average
The biggest worry investors have is that as soon as they get into the market, it will fall, and as soon as they get out, it will skyrocket. This is a very real risk, especially if you are trying to catch moves, or time the markets. Even professional traders and fund managers have a very hard time trying to predict random market moves. Chances are that you are a long-term investor, and don't want to play this type of guessing game with your hard earned money. You want a strategy that's conservative, and gives you a good rate of return. A very effective way to invest is through Dollar Cost Averaging.

So what is Dollar Cost Averaging? Well, it works on the premise that buying the same dollar amounts of stocks or bonds on a regular basis evens out the fluctuations of an investment made over time. Basically, you buy more when the market is low, and buy less when the market is high, since you are always investing the same dollar amount.

This takes the worry out of buying high and selling low, because the timing risk disappears. All that you have to do is consistently invest the same dollar amounts every day, week, or month. Your investment will grow with the market.

Since you are able to buy fractional shares with an Scheduled Investment Plan, you can invest absolutely any dollar amount, no matter how small. This is the ultimate dollar cost averaging solution. *As based on annualized total return of the S&P 500 from 1926 through 2004.