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Five rules to start with
- Know what you own. If you cannot explain a company in two sentences, learn more first.
- Spread it out. Do not put all your money in one stock or one topic.
- Think in years. Prices bounce every day. Good plans are built over time.
- Watch the fees. Small yearly costs add up over decades.
- Only invest money you can leave alone. Keep savings for bills and emergencies first.
20 words to know
- Stock
- A small piece of ownership in a company.
- Ticker
- The short code for a stock, like KO for Coca-Cola.
- Market cap
- Share price times the number of shares. The total value of a company.
- Dividend
- Cash a company pays its owners, often every three months.
- P/E ratio
- Price divided by earnings per share. A quick way to compare prices.
- EPS
- Earnings per share. Profit divided by shares.
- ETF
- A fund that holds many stocks and trades like one stock.
- Index
- A list of companies used to measure the market.
- Diversification
- Spreading money across many investments.
- Bull market
- A time when prices are rising.
- Bear market
- A time when prices have fallen a lot.
- Volatility
- How much a price jumps around.
- Expense ratio
- The yearly fee a fund charges.
- Small cap
- A company with a smaller total value.
- Option
- A contract giving the right, not the duty, to buy or sell at a set price.
- 10-K
- The yearly report public companies file with the SEC.
- Free cash flow
- Cash left after a company pays to run and grow.
- Compound growth
- Growth on your growth.
- Cost basis
- What you paid for an investment.
- Dollar cost averaging
- Investing a fixed amount on a regular schedule.
Three quick math tools
Rule of 72. Divide 72 by a yearly growth rate to estimate the years it takes to double your money. At 8 percent, 72 divided by 8 is 9 years. It is a rough guide, not a promise. Try the calculator.
P/E ratio. Divide the share price by earnings per share. A $50 stock that earns $2 per share has a P/E of 25. Compare it with similar companies. Try the calculator.
Dollar cost averaging. Invest the same amount on a schedule, like $200 a month. You buy more shares when prices are low and fewer when they are high. Try the calculator.
The 10 question quiz
- What does owning a stock mean?
- What does P/E stand for?
- What is a dividend?
- What does an ETF hold?
- Using the Rule of 72, how long to double at 6 percent?
- How do you figure market cap?
- Which yearly report do public companies file with the SEC?
- What is a bull market?
- What does diversification mean?
- What is dollar cost averaging?
Want a faster game? Play Stock Jeopardy.
Quiz answers
- You own a small part of the company.
- Price to earnings.
- Cash a company pays to its owners.
- Many stocks in one package.
- 12 years.
- Share price times number of shares.
- The 10-K.
- A time when prices are rising.
- Spreading money across many investments.
- Investing a fixed amount on a regular schedule.
Before you buy a stock
- What does this company sell, and who pays for it?
- Is it making a profit? If not, how long can it last?
- How much debt does it carry?
- Are sales growing, flat or falling?
- What is the P/E, and how does it compare with similar companies?
- What could go wrong, and could I live with that?
- How much of my total money would this be?
- Can I say why I am buying it in one sentence?
Pick a topic and keep going
Search stocks by story with StockVert. Space, AI, robotics, solar, battery storage, nuclear and more, each with what to watch and example companies.
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Positive Stocks is for education only. It is not investment advice. Investing involves risk, including loss of money. Do your own research and speak with a licensed professional.