Stocksplain
📖GlossaryEvery term, explained simply 🗂ArchivePast days’ digests 📻SourcesThe shows and newsrooms we follow ℹ️AboutHow Stocksplain works
Learn

Start here: investing from zero

New to investing? Start here. In 29 short lessons you'll go from 'what is a stock?' to reading company numbers, building smart habits and seeing how traders think, with a quick quiz after each one. It's education, not advice, and you can go at your own pace.

0 of 29 lessonsAbout 129 minutes in total, one a day is perfect
Unit 1

Money basics

The foundations: saving, growth, inflation, safety nets and risk.

Unit 2

How the stock market works

Shares, trading, indexes and why prices move the way they do.

Unit 3

Ways to invest

Funds, fees, bonds, building a mix and dividends.

Unit 4

Reading a company

The key numbers behind a business and its stock price.

Unit 5

Smart habits

The habits, accounts and mindset that matter most over a lifetime.

Unit 6

How traders think (and why it's hard)

The chart rules, strategies and robot traders behind a popular open-source trading tool, explained plainly, plus the evidence on whether they work.

Practice

Test yourself by level

Original questions written to the topics of real finance programs and exams, from everyday money (FDIC/CFPB level) to analyst level (CFA Level I topics). Not affiliated with any of them.

Practice
Money basics
Lesson 1 of 29 · 4 min

Saving vs investing

Two jobs for your money

Saving means setting money aside somewhere safe and easy to reach, like a bank savings account. The amount you put in stays the same or grows a little from interest. It is there when you need it.

Investing means buying something you expect to grow in value over time, like a small piece of a company (a share) or a fund that holds many companies. It can grow much more than savings, but its value goes up and down, sometimes a lot.

When to use which

A simple way to decide: think about when you will need the money. Money for the next few years (rent, a car repair, a trip next summer) usually belongs in savings, because you cannot afford for it to drop 20% right when you need it.

Money you will not touch for many years (retirement, a goal ten years away) has time to ride out the ups and downs. That is where investing makes sense for many people. The longer you can wait, the more the bumps tend to smooth out, though there is never a guarantee.

A note before you start

This course is education, not personal advice. It explains how things work and what the trade-offs are. It will never tell you to buy a particular stock or fund. Your situation, goals and country matter, so for big decisions consider talking to a qualified, fee-only financial professional.

Example: Two pots, two jobs

Sam has $3,000. Sam keeps $1,500 in savings for surprises and puts $1,500 into an investment fund for the long term.

If the fund drops 20% in a bad year, the investment is worth $1,200 for a while. Annoying, but Sam does not have to sell, because the $1,500 in savings covers any surprise. The savings pot protects the investing pot.

Key terms

Saving
Keeping money somewhere safe and easy to reach. Low risk, low growth.
Investing
Buying assets like shares or funds that you expect to grow over time. Higher potential growth, but the value can fall.
Time horizon
How long until you need the money. It is one of the biggest factors in choosing between saving and investing.
Remember

Save for the near future, invest for the far future.

Try it

Reflection: list one goal you have for the next two years and one for ten or more years from now. Which pot does each belong in?

Check yourself

1Maya needs $2,000 for a course that starts in four months. Where does that money most sensibly belong? foundation

2Why can investing make more sense for money you won't need for 15 years? foundation

3Which statement best describes the difference between saving and investing? foundation

Go deeper free, from the source
Money basics
Lesson 2 of 29 · 4 min

Compound growth: money that grows on itself

Growth on top of growth

When your money earns a return, that return gets added to your balance. Next year you earn a return on the bigger balance, including last year's gains. That is compound growth: growth on top of growth.

Think of a snowball rolling downhill. At first it picks up a little snow. As it gets bigger, each turn picks up more, because there is more surface to stick to.

Time does the heavy lifting

In the early years compounding looks boring. The magic shows up later, because the base you are growing keeps getting bigger. That is why time is often more powerful than the amount you start with.

A handy shortcut is the Rule of 72: divide 72 by the yearly growth rate to estimate how many years it takes money to double. At 6% a year, that is about 12 years. At 9%, about 8 years. It is an approximation, not an exact answer.

The honest fine print

Real investments do not grow by a neat, fixed percentage every year. Some years are up a lot, some are down. The numbers in this lesson are illustrative averages to show the idea, not a promise. Compounding also works against you with debt: credit card interest compounds too.

Example: $100 growing at 7% a year (illustrative)

Year 1: $100 earns $7, so you have $107. Year 2: you earn 7% of $107, which is $7.49, so you have $114.49.

Keep going and after 10 years you have about $197. After 20 years, about $387. After 30 years, about $761.

Notice the pattern: the first 10 years add about $97, but the last 10 years (from year 20 to 30) add about $374. Same rate, same starting $100. The difference is the bigger base.

Key terms

Compound growth
Earning returns on both your original money and the returns it has already earned.
Rule of 72
A quick estimate: 72 divided by the yearly growth rate is roughly the number of years for money to double.
Return
How much an investment gains or loses, usually shown as a percentage per year.
Remember

Compounding rewards time, so starting early, even small, can beat starting big later.

Try it

In paper trading, note your starting $10,000. Use the Rule of 72 to estimate how long it would take to double at an illustrative 8% a year.

Check yourself

1Using the Rule of 72, roughly how long does money take to double at 6% a year? foundation

2$100 grows at 10% a year. How much is it worth after two years? intermediate

3Why do the later years of compounding add more dollars than the early years at the same rate? intermediate

Go deeper free, from the source
Money basics
Lesson 3 of 29 · 4 min

Inflation: why cash slowly shrinks

Prices creep up

Inflation is the general rise in prices over time. If a sandwich costs $10 this year and $10.30 next year, that is 3% inflation for sandwiches. When inflation is 3%, your same dollar buys about 3% less stuff each year.

In the US, inflation is commonly measured by the Consumer Price Index (CPI), which tracks the price of a basket of everyday goods and services. The Federal Reserve, the US central bank, aims for inflation of about 2% a year over time. Many other countries' central banks have similar targets.

Real vs nominal

A nominal return is the number you see. A real return is what is left after inflation. If your savings account pays 2% and inflation is 3%, your balance goes up, but your buying power goes down by roughly 1%.

That is the hidden cost of keeping long-term money in cash. It feels safe, because the number never drops. But its buying power can quietly shrink.

What this means for you

Cash is still the right tool for short-term needs and emergencies. Inflation is mostly a problem for money you will hold for many years. That is one reason people invest long-term money in things that have historically tended to grow faster than inflation, accepting more ups and downs in exchange.

Example: $1,000 at 3% inflation (illustrative)

If prices rise 3% a year, something that costs $1,000 today would cost about $1,344 in 10 years.

Flip it around: $1,000 kept in cash would buy only about 74% as much after 10 years. Using the Rule of 72, at 3% inflation prices roughly double in 24 years, which means cash loses about half its buying power over that time.

Key terms

Inflation
The general rise in prices over time, which reduces what each dollar can buy.
Real return
Your return after subtracting inflation. It measures the change in buying power.
CPI
Consumer Price Index, a common US measure of inflation based on prices of everyday goods and services.
Remember

Cash that earns less than inflation keeps its number but loses its buying power.

Try it

Open the glossary and look up 'inflation' and 'real return'. Then think of one thing you buy that costs noticeably more than it did a few years ago.

Check yourself

1Your savings pay 1% a year and inflation is 4%. What happens to your buying power? intermediate

2What is the difference between a nominal and a real return? foundation

3Why is inflation a bigger concern for long-term money than for an emergency fund? intermediate

Go deeper free, from the source
Money basics
Lesson 4 of 29 · 5 min

Emergency fund first, and where to keep it

Why a cushion comes first

An emergency fund is cash set aside for surprises: a job loss, a medical bill, a broken laptop. A common guideline is three to six months of essential expenses, though the right amount depends on how stable your income is.

It comes before investing because investments can be down exactly when life goes wrong. Without a cushion you might have to sell at a loss or use a high-interest credit card. If you carry high-interest debt, paying it down is often part of this foundation too.

Safe places for cash

High-yield savings accounts are bank accounts that usually pay more interest than a standard savings account, and you can withdraw any time. CDs (certificates of deposit) pay a fixed rate if you leave money for a set term, like 12 months, with a penalty for early withdrawal.

Treasury bills are short-term loans to the US government, lasting a year or less. They are considered among the safest assets in the world, and their interest is exempt from state and local income tax (though not federal tax). Money-market funds are investment funds that hold very short-term, high-quality debt and most aim to keep a steady $1 share price. They are very low risk, but not guaranteed. Rates on all of these change over time, so compare current rates yourself.

What insurance does and doesn't cover

FDIC insurance protects deposits at US banks, up to $250,000 per depositor, per bank, per ownership category, if the bank fails. Credit unions have similar NCUA coverage. It does not cover stocks, bonds, crypto or money-market funds, even if you bought them through a bank.

SIPC protects you if your brokerage firm fails and your assets go missing, generally up to $500,000 including up to $250,000 in cash. It does not protect you from investments losing value. Other countries have their own deposit-insurance schemes with different limits.

Example: Sizing a cushion

Alex's essential monthly costs: rent $1,200, food $400, transport $150, phone and utilities $250. That is $2,000 a month.

Three months is $6,000; six months is $12,000. Alex's job is steady, so Alex aims for $6,000, saving $500 a month. That takes 12 months. Alex keeps it in a high-yield savings account so it is safe, insured and reachable.

Key terms

Emergency fund
Cash set aside for unexpected expenses, often three to six months of essential costs.
FDIC insurance
US government protection for bank deposits if a bank fails, up to set limits. It does not cover investments.
SIPC
Protection if a US brokerage firm fails. It does not cover losses from investments falling in value.
Treasury bill
A short-term loan to the US government, lasting a year or less.
Remember

Build a cash cushion in a safe, insured place before putting money at risk.

Try it

Add up your essential monthly costs and multiply by three. That is a starting target for your cushion. Then look up 'FDIC' in the glossary.

Check yourself

1Your brokerage firm goes out of business and some of your shares are missing from your account. What is designed to help? intermediate

2Which of these is NOT covered by FDIC insurance, even if bought at a bank? intermediate

3Why does an emergency fund usually come before investing? foundation

Go deeper free, from the source
Money basics
Lesson 5 of 29 · 4 min

Risk and return: two sides of one coin

No free lunch

In investing, risk usually means uncertainty: the chance that your result is very different from what you expected, including losing money. Return is what you gain or lose.

The core idea: investments that offer higher potential returns usually come with more risk. If something offered high returns with no risk, everyone would buy it until the price rose and the return disappeared. So anyone promising high returns with no risk deserves suspicion.

A ladder of risk

Picture a ladder. At the bottom: insured savings and Treasury bills, with low, steady returns. In the middle: bonds, which usually swing less than stocks. Near the top: a broad mix of stocks. At the very top: single stocks, crypto and other speculative bets, which can soar or crash.

Over the long run, US stocks have returned roughly 7% a year after inflation on average, with big swings and no guarantee. Treat that as an illustrative figure, not a forecast. The S&P 500 fell more than 50% from its 2007 peak to its 2009 low, and about a third in a few weeks in early 2020. Average returns hide years like those.

Your risk is personal

How much risk makes sense depends on your time horizon, how stable your income is and how you would feel and act if your investments dropped 30%. Someone who would panic and sell at the bottom may be better off with a calmer mix they can stick with.

Example: Same average, different ride (illustrative)

Investment A earns 5% every year. Investment B earns +25%, then -15%, alternating.

Start with $1,000. After two years, A has $1,000 x 1.05 x 1.05 = $1,102.50. B goes to $1,250, then down 15% to $1,062.50.

B's simple average is 5% a year, the same as A, yet B ends with less. Big swings drag on results, and they test your nerves.

Key terms

Risk
The uncertainty of an investment's outcome, including the chance of losing money.
Volatility
How much and how quickly an investment's price moves up and down.
Risk tolerance
How much ups and downs you can handle, both financially and emotionally, without abandoning your plan.
Remember

Higher potential return comes with higher risk; anyone offering one without the other is a red flag.

Try it

Check the Market mood gauge on today's page. Ask yourself: if your investments dropped 30% on a fearful day, what would you honestly do?

Check yourself

1Someone offers an investment with 'high returns and zero risk'. What does this lesson suggest? foundation

2Which is generally lowest on the risk ladder? foundation

3Two investments have the same simple average return, but one swings much more. What usually happens? advanced

Go deeper free, from the source
How the stock market works
Lesson 6 of 29 · 4 min

What is a share?

A slice of the pie

A company can be split into millions or billions of equal pieces called shares (also called stock). If you own one share, you own a tiny fraction of that company: its buildings, products, brand and future profits.

Companies sell shares to raise money to grow. The first time a company sells shares to the public is called an IPO, or initial public offering. After that, shares mostly trade between investors.

How shareholders can make money

There are two main ways. First, the share price can rise if the company becomes more valuable or investors become more optimistic about it. Second, some companies pay part of their profits to shareholders as dividends.

There is also a downside. If the company struggles, the price can fall. If it goes bankrupt, shareholders are last in line and often get nothing. Your loss is limited to what you put in, though: you can't owe more than you paid for a share you bought outright.

Shareholder rights

Shareholders usually get a vote on big decisions, such as electing the board of directors, roughly one vote per share. In practice, small investors have very little say. The real benefit is owning a claim on the company's success.

Example: Your slice in numbers

Imagine a pizza company split into 1,000,000 shares. You buy 100 shares at $20 each, spending $2,000. You own 100 / 1,000,000 = 0.01% of the company.

If the company grows and the share price rises to $25, your shares are worth $2,500, a $500 gain. If the price drops to $15, they are worth $1,500. Nothing is gained or lost until you sell, but the value is real either way.

Key terms

Share (stock)
A unit of ownership in a company.
IPO
Initial public offering: the first time a company sells its shares to the public.
Shareholder
Someone who owns shares in a company.
Remember

A share is part-ownership of a real business, and its value rises and falls with that business's prospects.

Try it

Open any company card in the app and find its market cap and share price. You now know what one share represents.

Check yourself

1What do you own when you buy one share of a company? foundation

2If a company you own shares in goes bankrupt, what typically happens to shareholders? foundation

3Which is a way shareholders can earn money? foundation

Go deeper free, from the source
How the stock market works
Lesson 7 of 29 · 5 min

How buying and selling actually works

Exchanges: the marketplace

Shares trade on stock exchanges, which match buyers with sellers. In the US, the two biggest are the New York Stock Exchange (NYSE) and Nasdaq. Regular trading runs from 9:30 a.m. to 4:00 p.m. Eastern Time on weekdays, except holidays. Other countries have their own exchanges, like London, Tokyo or Mumbai.

You don't go to the exchange yourself. You use a broker, an app or firm that sends your order to the market. For every share you buy, someone else is selling it.

Bid and ask

At any moment, buyers post how much they will pay (the bid) and sellers post how much they want (the ask). The ask is a bit higher than the bid. The gap is the spread.

For huge, popular companies the spread is often just a cent. For small or rarely traded stocks it can be much wider, which is a hidden cost when you trade.

Market vs limit orders

A market order says: buy or sell right now at the best available price. It almost always fills fast, but in a fast-moving market the price you get can differ from the price you saw.

A limit order says: buy only at this price or lower (or sell only at this price or higher). You control the price, but the order may never fill if the market doesn't reach your limit.

Example: Reading a quote

A stock shows: bid $50.00, ask $50.05. A market buy order for 10 shares would typically fill around the ask: 10 x $50.05 = $500.50.

If you sold immediately with a market order, you'd get around the bid: 10 x $50.00 = $500.00. Even though the price didn't move, you'd be down $0.50. That's the spread.

A limit buy at $49.90 would wait. It fills only if a seller agrees to $49.90 or less.

Key terms

Bid
The highest price a buyer is currently willing to pay.
Ask
The lowest price a seller is currently willing to accept.
Spread
The gap between the bid and the ask; a small cost of trading.
Market order
An order to trade right away at the best available price.
Limit order
An order to trade only at a chosen price or better.
Remember

Market orders prioritise speed; limit orders prioritise price.

Try it

In paper trading, buy $1,000 of SPY. Remember that orders fill at the next price update, so compare the price you saw with the price you got.

Check yourself

1A stock's bid is $20.00 and its ask is $20.10. Roughly what will you pay per share with a market buy order? foundation

2What is the main risk of a limit order? intermediate

3Why can trading a small, rarely traded stock cost more than trading a giant company? intermediate

Go deeper free, from the source
How the stock market works
Lesson 8 of 29 · 4 min

Indexes: taking the market's temperature

A basket that stands for the market

There are thousands of stocks, so people track indexes: lists of stocks combined into one number that shows how the group is doing.

The S&P 500 follows about 500 large US companies, picked by a committee. It is weighted by size, so a giant company moves it much more than a smaller one. Many people treat it as shorthand for 'the US stock market'.

The Nasdaq Composite includes the thousands of stocks listed on the Nasdaq exchange and leans heavily toward technology. The Dow Jones Industrial Average (the Dow) tracks just 30 big companies and is weighted by share price, an older method, so a stock with a higher price moves it more regardless of company size.

What 'up 1%' means

When the news says 'the S&P 500 rose 1% today', it means the index closed 1% higher than its previous close. Some stocks inside it fell; on balance, the group rose.

Index points can mislead. A 400-point move in the Dow sounds dramatic, but the percentage is what matters. The bigger the index number, the more points a 1% move is.

Other countries

Most markets have a headline index: the FTSE 100 in the UK, the Nikkei 225 in Japan, the Nifty 50 in India. Global indexes combine many countries.

Example: Points vs percent

Suppose the Dow is at 40,000 and rises 400 points. That is 400 / 40,000 = 1%.

If the S&P 500 is at 5,000 and rises 50 points, that is also 1%. Same move, very different-sounding point numbers. (These index levels are illustrative.)

Key terms

Index
A combined measure of a group of stocks that shows how that group is performing.
S&P 500
An index of about 500 large US companies, weighted by company size.
Dow Jones Industrial Average
An index of 30 large US companies, weighted by share price.
Nasdaq Composite
An index of the stocks listed on the Nasdaq exchange, heavy in technology.
Remember

An index is the market's thermometer, and the percentage change matters more than the points.

Try it

On today's page, tap the (i) on the S&P 500 and Dow tiles. Compare their percentage moves, not their point moves.

Check yourself

1The S&P 500 rises 1% today. What does that mean? foundation

2The Dow rises 300 points while a smaller index rises 30 points. What can you conclude? intermediate

3How is the S&P 500 different from the Dow? intermediate

Go deeper free, from the source
How the stock market works
Lesson 9 of 29 · 4 min

Why stock prices move

Price = what people expect

A share's price reflects what investors collectively expect about a company's future profits, and how much they are willing to pay for them today. When expectations change, the price changes.

That is why a company can report record profits and its stock still falls: investors had expected even more. Markets react to the gap between reality and expectations, not to good or bad news alone.

The big drivers

Earnings: how much profit a company makes and what it says about the future. Expectations: the forecasts already baked into the price. Interest rates: when rates rise, safe savings and bonds pay more, so stocks have more competition, and future profits are worth less in today's money. Higher rates can also slow the economy. Falling rates tend to work the other way.

News and events: new products, lawsuits, elections, wars, economic reports like jobs or inflation numbers. Mood: fear and greed can push prices further than the facts justify, in either direction.

Short-term noise, long-term signal

Day to day, prices bounce on news and emotion. Over many years, a company's price tends to follow its actual ability to grow profits, though with no guarantee and plenty of exceptions.

Example: Good news, falling price

Analysts expect a company to earn $2.00 per share this quarter. It reports $1.90, up from $1.50 a year ago, a 27% increase.

Growth is strong, but it fell short of the $2.00 expectation by 5%. The stock may well drop, because the price had already assumed $2.00. Real-world reactions vary, but this gap between result and expectation is often what moves prices.

Key terms

Expectations
What investors already predict will happen, which is built into today's price.
Earnings
A company's profit over a period, usually reported every quarter in the US.
Interest rates
The cost of borrowing money. Changes in rates affect how attractive stocks are versus safer options.
Remember

Prices move when reality differs from what was expected.

Try it

Play the prediction game: pick a stock with an earnings date coming up and call it up or down for tomorrow. Write down why, and check if expectations played a part.

Check yourself

1A company reports higher profits than last year, but the stock falls. What's the most likely reason? intermediate

2How do rising interest rates tend to affect stocks? advanced

3Over many years, what tends to matter most for a company's share price? foundation

Go deeper free, from the source
How the stock market works
Lesson 10 of 29 · 4 min

Bull markets, bear markets and volatility

Bulls and bears

A bull market is a long stretch of rising prices and optimism. A bear market is commonly defined as a fall of 20% or more from a recent high. A drop of 10% or more is often called a correction. These are informal rules of thumb, not official definitions.

Historically, US bull markets have lasted much longer than bear markets on average, but bear markets do happen, sometimes more than once a decade, and nobody can reliably predict when one starts or ends.

Volatility is normal

Volatility is how much prices swing. Even in good years, the stock market usually has a noticeable dip at some point, and drops of 10% or more within a single year are common. Swings are the price of admission for the higher long-run growth stocks have offered.

The VIX: the 'fear gauge'

The VIX is an index that estimates how much investors expect the S&P 500 to swing over the next 30 days, based on prices of options (contracts people use to bet on or protect against moves). When investors are nervous, they pay more for protection and the VIX rises.

In calm periods the VIX often sits in the teens. In panics it has spiked above 40, and at the extremes of 2008 and 2020, above 80. A high VIX means big moves are expected, not which direction they'll go.

Example: Recovering from a drop

A portfolio worth $10,000 falls 20% to $8,000. To get back to $10,000, it needs to gain $2,000 on $8,000, which is 25%, not 20%.

After a 50% fall ($10,000 to $5,000), it needs a 100% gain to recover. That's why big drops feel so painful, and why staying invested through recoveries matters.

Key terms

Bull market
A long period of rising prices and optimism.
Bear market
Commonly, a fall of 20% or more from a recent high.
Correction
Commonly, a fall of 10% or more from a recent high.
VIX
An index of expected S&P 500 volatility over the next 30 days, often called the fear gauge.
Remember

Drops and swings are a normal part of investing, not a sign something is broken.

Try it

Check the Market mood gauge on today's page. Is the market feeling fearful or greedy? Look back in a week to see whether the mood shifted.

Check yourself

1The S&P 500 is 12% below its recent high. What is this commonly called? foundation

2The VIX jumps sharply. What does that tell you? intermediate

3Your investment falls 20%. What gain do you need to get back to where you started? intermediate

Go deeper free, from the source
Ways to invest
Lesson 11 of 29 · 4 min

Index funds and ETFs: buying the whole basket

What a fund is

A fund pools money from many investors and buys many investments at once. With one purchase you can own a small slice of hundreds or thousands of companies.

An index fund simply tries to match an index, such as the S&P 500, by holding the same stocks in the same proportions. No one is trying to pick winners, which keeps costs low. Funds where managers pick investments are called actively managed funds; research has repeatedly found that most of them trail their index over long periods, especially after fees.

ETFs vs mutual funds

An ETF (exchange-traded fund) trades on an exchange like a stock: its price moves during the day and you buy it through a broker. A traditional mutual fund is priced once a day after the market closes. Both can be index funds. The differences are mostly about how you buy them, minimum investments and, in the US, some tax details.

SPY, VTI and QQQ, which you can trade in the app's paper trading, are ETFs that track the S&P 500, the whole US market and the Nasdaq-100 respectively. Mentioning them is not a recommendation; they are just well-known examples.

The trade-offs

Index funds give you the market's return, minus small fees. That means you'll never beat the market, but you're unlikely to fall far behind it. You also get whatever the index holds, including its booms and busts. A narrow index, like one sector, is less diversified than a broad one.

Example: One share vs one fund

Put $1,000 in one company's stock. If it falls 50% you have $500.

Put $1,000 in a fund holding 500 companies, each a small slice. If one company falls 50% and it was 1% of the fund, that costs you about $5 (1% of $1,000 is $10, half of which is lost). Your result depends on how the whole group does, not one company.

Key terms

Index fund
A fund that tries to match the performance of an index by holding the same investments.
ETF
Exchange-traded fund: a fund that trades on an exchange like a stock.
Mutual fund
A pooled fund usually bought directly from the fund company and priced once a day.
Active fund
A fund whose managers pick investments trying to beat the market.
Remember

An index fund lets you own a whole market in one purchase, at low cost.

Try it

In paper trading, buy $1,000 of VTI and $1,000 of QQQ. Check them over the next week and notice how differently a broad fund and a tech-heavy fund move.

Check yourself

1What does an S&P 500 index fund try to do? foundation

2What's a key difference between an ETF and a traditional mutual fund? intermediate

3What's a downside of an index fund? foundation

Go deeper free, from the source
Ways to invest
Lesson 12 of 29 · 4 min

Fees: the small number that eats big money

What you pay

Funds charge an expense ratio: a yearly fee shown as a percentage of what you have invested. It is taken out of the fund automatically, so you never see a bill, which makes it easy to ignore.

A 0.05% expense ratio means $5 a year for every $10,000 invested. A 1% expense ratio means $100 a year per $10,000. Broad index funds often charge very little; many actively managed funds and financial advisers charge 1% or more. There can also be trading commissions, account fees and the bid-ask spread.

Why fees compound

Fees don't just take a slice each year. The money they take can no longer grow for you. So a fee gap compounds, just like returns do, and over decades it can add up to a big share of your final balance.

Returns are uncertain, but fees are certain. That's why, all else being equal, lower costs are one of the few things in investing that reliably help. A higher fee can be worth it if you truly get something valuable for it, like good advice that keeps you on track, but it should be a conscious choice.

Where to find it

Every fund publishes its expense ratio in its fact sheet and prospectus. Look for it before you buy. Fee rules and disclosure vary by country, but the maths is the same everywhere.

Example: 1% vs 0.05% over 30 years (illustrative)

Invest $10,000 once. Assume the investments return 7% a year before fees, as a simple illustration.

With a 0.05% fee, you keep 6.95% a year. After 30 years: about $75,000.

With a 1% fee, you keep 6% a year. After 30 years: about $57,400.

Same investments, same market. The higher fee costs about $17,600, nearly twice the original $10,000.

Key terms

Expense ratio
A fund's yearly fee as a percentage of your investment, taken out automatically.
Commission
A fee charged for making a trade. Many brokers now charge none for stocks and ETFs, but check.
Prospectus
The official document describing a fund, including its fees, goals and risks.
Remember

Fees are one of the few things you control, and small differences compound into big ones.

Try it

Look up 'expense ratio' in the glossary. Then calculate: what would a 1% fee cost per year on $5,000? (Answer: $50.)

Check yourself

1A fund has a 0.20% expense ratio and you have $10,000 in it. What's the yearly fee? intermediate

2Why does a 1% fee gap matter so much over 30 years? intermediate

3Which is the most accurate statement about fees? foundation

Go deeper free, from the source
Ways to invest
Lesson 13 of 29 · 5 min

Bonds: lending your money

A bond is a loan

When you buy a bond, you lend money to a government or company. In return, they usually pay you regular interest (the coupon) and promise to repay the original amount (the face value) on a set date (maturity).

US Treasury bonds are backed by the US government and considered very safe from default. Corporate bonds pay more, because companies are more likely to fail to repay. Bonds from borrowers with a higher risk of default, rated below 'investment grade', are called high-yield or junk bonds.

Yield

A bond's yield is the return you'd earn if you bought it at today's price and held it to maturity. When you see 'the 10-year Treasury yield', that is the yield on US government debt maturing in 10 years. It is closely watched because it influences mortgage rates and many other borrowing costs.

Why prices fall when rates rise

Imagine you own a bond paying 3%. Then new bonds start paying 5%. Nobody will pay full price for your 3% bond when they could get 5% elsewhere, so its price has to drop until its yield matches the market. When rates fall, the opposite happens and older, higher-paying bonds become more valuable.

The longer until a bond matures, the more its price moves when rates change. Short-term bonds barely budge; long-term bonds can swing a lot. If you hold a high-quality bond to maturity, you still get the full face value back, as long as the issuer doesn't default.

Bonds in a portfolio

Bonds have usually swung less than stocks and paid steadier income, so people often use them to soften a portfolio's ups and downs. But they are not risk-free: inflation, rising rates and defaults can all hurt.

Example: A one-year bond when rates change

A bond will pay you $1,030 in one year: $1,000 face value plus $30 interest (a 3% coupon).

If new one-year bonds suddenly pay 5%, what would a buyer pay for your bond? The price at which $1,030 is a 5% gain: $1,030 / 1.05 = about $981. Your bond's price fell about $19.

If instead rates fell to 1%, buyers would pay $1,030 / 1.01 = about $1,020. Your bond rose in value.

Key terms

Bond
A loan to a government or company that pays interest and returns your money at maturity.
Coupon
The interest a bond pays, usually as a fixed percentage of its face value.
Yield
The return you'd earn buying a bond at today's price and holding it to maturity.
Maturity
The date when a bond's face value is repaid.
Remember

Bond prices and interest rates move in opposite directions.

Try it

On today's page, tap the (i) on the 10-yr Treasury tile. If the yield went up today, what likely happened to the prices of existing bonds?

Check yourself

1Interest rates rise sharply. What tends to happen to the price of a bond you already own? intermediate

2Which bond's price is likely to move most when rates change? advanced

3Why do corporate bonds usually pay higher interest than US Treasury bonds? intermediate

Go deeper free, from the source
Ways to invest
Lesson 14 of 29 · 4 min

Diversification and asset allocation

Diversification

Diversification means spreading your money across many different investments so that one disaster doesn't sink you. If you own one company and it fails, you lose a lot. If you own 500 and one fails, you barely notice.

Diversification reduces the risk tied to individual companies or industries. It cannot remove market risk: when the whole market falls, a diversified portfolio usually falls too, just less dramatically than the worst single stocks. It is about avoiding wipeouts, not avoiding all losses.

Asset allocation

Asset allocation is how you split money between broad types of investments, mainly stocks, bonds and cash. It is one of the biggest drivers of how much your portfolio swings.

More stocks means more growth potential and bigger swings. More bonds and cash means a smoother ride and usually lower long-run growth. People with long time horizons often hold more stocks; people who need the money sooner often hold more bonds and cash. There is no single right mix.

Staying on track

Over time, your mix drifts as some investments grow faster. Rebalancing means occasionally moving money back to your chosen mix. Some people use target-date funds, which hold a mix of stocks and bonds and gradually become more conservative as a chosen year approaches. They are convenient, but check their fees and whether their mix suits you.

Example: Two mixes in a bad year (illustrative)

Suppose stocks fall 30% and bonds rise 2% in a year.

Portfolio A: $10,000 all in stocks becomes $7,000, a 30% loss.

Portfolio B: $6,000 stocks and $4,000 bonds. Stocks become $4,200, bonds become $4,080. Total $8,280, a 17.2% loss.

In a strong year for stocks, A would usually come out ahead. The mix decides the ride.

Key terms

Diversification
Spreading money across many investments to reduce the damage any one can do.
Asset allocation
How you divide money among stocks, bonds and cash.
Rebalancing
Adjusting your holdings back to your chosen mix after the market shifts it.
Target-date fund
A fund that mixes stocks and bonds and becomes more conservative as a target year nears.
Remember

Diversification protects you from single disasters; asset allocation sets how bumpy your ride will be.

Try it

In paper trading, put your virtual money into a mix you choose, say part SPY and part a single big company. After a week, compare how each piece moved.

Check yourself

1What risk can diversification NOT eliminate? intermediate

2Using this lesson's example numbers, why did Portfolio B lose less than Portfolio A? intermediate

3What is rebalancing? foundation

Go deeper free, from the source
Ways to invest
Lesson 15 of 29 · 4 min

Dividends: getting paid to own

What a dividend is

A dividend is a payment a company makes to shareholders, usually from its profits. Many US companies that pay dividends do so every quarter. Not all companies pay them: many fast-growing companies prefer to reinvest profits in the business instead.

The dividend yield is the yearly dividend divided by the share price. A $100 stock paying $3 a year has a 3% yield.

Dividends aren't free money

When a dividend is paid, cash leaves the company, so the company is worth a little less. That's why a stock's price typically drops by about the dividend amount on the ex-dividend date, the cutoff for qualifying. You must own the shares before that date to get the payment.

Dividends are one way a company returns value; a rising share price is another. What matters is your total return: price change plus dividends.

Watch out for very high yields

A very high yield can be a warning sign. Yield rises when the price falls, so a sky-high yield sometimes means investors fear the company is in trouble and might cut the dividend. Dividends are never guaranteed and can be reduced or stopped.

You can usually choose to reinvest dividends automatically, buying more shares, which lets compounding work. In taxable accounts, dividends are usually taxed, and rules differ by country.

Example: Calculating income and total return

You own 50 shares of a $40 stock: $2,000 invested. It pays $0.40 per share each quarter, which is $1.60 a year.

Yearly dividends: 50 x $1.60 = $80. Dividend yield: $1.60 / $40 = 4%.

If the price also rises to $42 over the year, your shares gain $100. Total return: $100 + $80 = $180, or 9% of $2,000.

Key terms

Dividend
A cash payment from a company to its shareholders.
Dividend yield
The yearly dividend divided by the share price, shown as a percentage.
Ex-dividend date
The cutoff date: you must own the shares before it to receive the next dividend.
Total return
Price change plus dividends, the full picture of what an investment earned.
Remember

Judge an investment by total return, not dividend yield alone.

Try it

Open a few company cards and compare their dividend yields. Notice which pay none, and think about why a fast-growing company might skip dividends.

Check yourself

1A stock costs $50 and pays $2 a year in dividends. What is its dividend yield? intermediate

2Why does a stock's price typically drop around its ex-dividend date? advanced

3A stock suddenly shows a 15% dividend yield. What's a sensible first thought? intermediate

Go deeper free, from the source
Reading a company
Lesson 16 of 29 · 4 min

Revenue, profit and margins

From sales to profit

Revenue (also called sales or the top line) is all the money a company brings in from selling things. It is not profit. A lemonade stand that sells $1,000 of lemonade has $1,000 of revenue, even if lemons and cups cost $900.

Subtract the direct costs of making what you sell and you get gross profit. Subtract running costs like salaries, rent and marketing and you get operating profit. Subtract interest and taxes and you get net income (the bottom line), what's left for shareholders.

Margins: profit per dollar of sales

A margin is profit divided by revenue. A 20% net margin means the company keeps 20 cents of every dollar of sales as profit.

Margins differ hugely by industry. Supermarkets often run thin net margins of a few percent but sell enormous volumes. Software companies can have much higher margins because selling one more copy costs little. So compare a company's margins with its own past and with similar companies, not with everyone.

What to look for

Is revenue growing? Are margins stable, rising or shrinking? A company growing sales while margins collapse may be buying growth expensively. A company with shrinking sales but rising margins may be cutting costs, which can only go so far.

Example: A coffee chain's year (illustrative)

Revenue: $10 million. Coffee beans, milk and cups: $3 million. Gross profit: $7 million, a 70% gross margin.

Salaries, rent and marketing: $5.5 million. Operating profit: $1.5 million, a 15% operating margin.

Interest and taxes: $0.5 million. Net income: $1 million, a 10% net margin. Of every $5 latte, about 50 cents ends up as profit.

Key terms

Revenue
All the money a company brings in from sales, before any costs.
Net income
Profit left after all costs, interest and taxes. Also called the bottom line.
Margin
Profit divided by revenue, showing how much of each sales dollar is kept as profit.
Remember

Revenue is what comes in; profit is what's left; margins show how efficiently one turns into the other.

Try it

Open a company card and check its upcoming earnings date. When it arrives, read the digest story and look for revenue and profit figures.

Check yourself

1A company has $50 million in revenue and $5 million in net income. What is its net margin? intermediate

2Why can't you judge a company by revenue alone? foundation

3A supermarket has a 3% net margin and a software company has a 25% net margin. What can you conclude? intermediate

Go deeper free, from the source
Reading a company
Lesson 17 of 29 · 5 min

EPS, P/E and market cap

Market cap: the size of the company

Market capitalisation (market cap) is the total value of all a company's shares: share price times number of shares. It tells you how big the market thinks the company is.

The share price alone tells you almost nothing about size. A $500 stock can belong to a smaller company than a $50 stock, if the $50 company has many more shares.

EPS: profit per share

Earnings per share (EPS) is net income divided by the number of shares. If a company earns $1 billion and has 500 million shares, its EPS is $2. It lets you compare profit growth over time even as the number of shares changes.

P/E: the price tag on profits

The price-to-earnings ratio (P/E) is the share price divided by EPS. A stock at $40 with EPS of $2 has a P/E of 20: investors are paying $20 for every $1 of yearly profit. Trailing P/E uses the past year's earnings; forward P/E uses forecasts.

A high P/E usually means investors expect strong growth. A low P/E can mean a bargain, or that investors expect trouble. P/E doesn't work for companies with no profits, and it varies by industry and over time. It's a starting question, not an answer.

Example: Comparing two companies

Company A: share price $200, 100 million shares, net income $1 billion. Market cap = $200 x 100 million = $20 billion. EPS = $1 billion / 100 million = $10. P/E = $200 / $10 = 20.

Company B: share price $50, 1 billion shares, net income $1 billion. Market cap = $50 billion. EPS = $1. P/E = 50.

B has the lower share price but is the bigger company, and investors pay much more for each dollar of its profit, likely because they expect faster growth.

Key terms

Market cap
Share price times number of shares: the market's total value for a company.
EPS
Earnings per share: net income divided by the number of shares.
P/E ratio
Share price divided by earnings per share: how much investors pay for $1 of yearly profit.
Remember

Market cap shows size, EPS shows profit per share, and P/E shows how much investors are paying for those profits.

Try it

Open two company cards and compare their market cap and P/E. Which does the market expect to grow faster, and why might that be?

Check yourself

1A stock trades at $60 and its EPS is $3. What is its P/E ratio? intermediate

2Stock X costs $300 per share and stock Y costs $30. What do you know about which company is bigger? intermediate

3A company has a very high P/E. What does that usually suggest? advanced

Go deeper free, from the source
Reading a company
Lesson 18 of 29 · 5 min

Earnings reports: beats, misses and 'adjusted' numbers

Report card season

US public companies report results every quarter, plus a fuller annual report, filed with the SEC (the US market regulator). Companies in some other countries report every six months. Around each report, you'll see headlines about the company beating or missing estimates.

Estimates (or consensus) are the average forecasts of analysts who follow the company. A beat means results came in above estimates; a miss means below. As you learned, prices react to the surprise, not just the result.

Guidance: the forward look

Many companies also give guidance: their own forecast for the next quarter or year. Guidance often moves the stock more than the results themselves. A company can beat this quarter and still fall if it lowers its outlook.

GAAP vs adjusted earnings

In the US, official results follow GAAP (Generally Accepted Accounting Principles), a standard rulebook. Many other countries use a similar rulebook called IFRS. Many companies also report adjusted (non-GAAP) earnings that leave out certain costs, such as restructuring charges or stock-based pay for employees.

Adjusted numbers can help show the ongoing business by stripping out one-off events. But companies choose the adjustments, and they almost always make profits look bigger. Stock-based pay, for example, is a real cost to shareholders. US rules require companies to show how adjusted numbers reconcile to GAAP, so you can compare. A big, persistent gap between the two is worth questioning.

Example: Same quarter, two profits

A company reports GAAP net income of $80 million. It adds back $30 million of stock-based pay and $10 million of restructuring costs, giving adjusted net income of $120 million, 50% higher.

With 100 million shares, GAAP EPS is $0.80 and adjusted EPS is $1.20. If analysts expected $1.10 adjusted, headlines will say it beat. The GAAP picture is less rosy, and both are true at once.

Key terms

Earnings estimate
The average forecast of analysts for a company's results.
Guidance
A company's own forecast for upcoming results.
GAAP
The standard US accounting rules for official financial results.
Adjusted earnings
Company-chosen profit figures that exclude certain costs; also called non-GAAP.
Remember

Look at both the headline 'beat' and the guidance, and check how far adjusted earnings sit from GAAP.

Try it

Find a company card with an earnings date this week. After it reports, read the digest story and note: beat or miss, and did guidance go up or down?

Check yourself

1A company beats this quarter's estimates but cuts its forecast for next year. What might happen to the stock? intermediate

2Why should you be careful with adjusted earnings? intermediate

3GAAP EPS is $0.80 and adjusted EPS is $1.20. Which is true? advanced

Go deeper free, from the source
Reading a company
Lesson 19 of 29 · 4 min

The balance sheet in plain English

A snapshot

A balance sheet is a snapshot of a company's finances on one day. It has three parts. Assets: what the company owns, like cash, buildings, equipment, inventory and money customers owe it. Liabilities: what it owes, like loans, bonds and bills to suppliers. Shareholders' equity: what's left over for owners.

It always balances: assets = liabilities + equity. Think of a house: if your home is worth $400,000 and your mortgage is $300,000, your equity is $100,000.

What to look for

Cash vs debt: lots of cash and little debt gives a company room to survive bad times. Heavy debt is not automatically bad, but it means interest payments must be made even in tough years, and rising rates make new borrowing pricier.

Short-term health: compare current assets (cash and things that turn into cash within a year) with current liabilities (bills due within a year). If short-term bills far exceed short-term resources, the company may struggle to pay them.

Its limits

The balance sheet doesn't show whether a company is profitable; that's the income statement, which covers revenue and profit. It also tends to undervalue things like brands and know-how. Use it alongside profit and cash flow, not alone.

Example: Reading a simple balance sheet

A company has $500 million in assets: $100 million cash, $150 million inventory and customer bills, $250 million buildings and equipment.

It owes $300 million: $80 million in bills due this year and a $220 million long-term loan. Equity = $500 million - $300 million = $200 million.

Current assets ($100m cash + $150m inventory and customer bills = $250m) comfortably exceed current liabilities ($80m), so short-term bills look manageable.

Key terms

Assets
Everything a company owns that has value.
Liabilities
Everything a company owes to others.
Shareholders' equity
Assets minus liabilities: the owners' share of the company on paper.
Balance sheet
A snapshot of what a company owns and owes on a given date.
Remember

Assets minus liabilities equals equity, and a strong balance sheet helps a company survive hard times.

Try it

Reflection: write your own mini balance sheet. List what you own and what you owe. What's your equity?

Check yourself

1A company has $900 million in assets and $600 million in liabilities. What is its shareholders' equity? intermediate

2Which question can the balance sheet alone NOT answer? intermediate

3Why might heavy debt be a risk for a company? intermediate

Go deeper free, from the source
Smart habits
Lesson 20 of 29 · 5 min

Steady wins: dollar-cost averaging and time in the market

Dollar-cost averaging

Dollar-cost averaging (DCA) means investing a fixed amount on a regular schedule, like $200 every month, no matter what prices are doing. When prices are low, your $200 buys more shares; when they're high, it buys fewer.

Many people already do this through workplace retirement plans that invest part of every paycheck. Its biggest benefit is behavioural: you don't have to decide when to invest, so fear and excitement have less say.

An honest comparison

If you already have a lump sum, studies of past market data have found that investing it all at once has more often come out ahead than spreading it out, simply because markets have risen more often than they've fallen. DCA trades some expected return for less regret if prices drop right after you invest. Both are reasonable; neither is guaranteed.

Time in the market vs timing it

Market timing means trying to jump out before drops and back in before rises. It sounds clever, but you have to be right twice: when to get out and when to get back in. Many of the market's best days have come close to its worst days, often during scary periods when it feels safest to be out. Missing even a handful of those best days can noticeably lower long-run returns.

Staying invested through the ups and downs, with money you won't need soon, has historically been a more reliable approach than trying to predict them.

Example: DCA through a dip

You invest $100 a month for three months. The fund's price is $10, then $5, then $10.

Month 1: 10 shares. Month 2: 20 shares. Month 3: 10 shares. Total: 40 shares for $300, an average cost of $7.50 per share.

The average price over those months was about $8.33, but your average cost was lower, because your fixed amount bought more when the price was low. At $10, your 40 shares are worth $400.

Key terms

Dollar-cost averaging
Investing a fixed amount at regular intervals regardless of price.
Lump sum investing
Investing a large amount all at once.
Market timing
Trying to buy and sell based on predictions of short-term market moves.
Remember

A steady habit and patience beat trying to guess the market's next move.

Try it

In paper trading, pick one ETF and buy the same dollar amount every week for a month. Compare your average cost with the price on the last day.

Check yourself

1You invest $300 per month. The price is $30 one month and $15 the next. How many shares do you buy in total? intermediate

2What is the main advantage of dollar-cost averaging? foundation

3Why is market timing so hard? intermediate

Go deeper free, from the source
Smart habits
Lesson 21 of 29 · 4 min

Your brain on money: common traps

Fear and greed

FOMO (fear of missing out) is the urge to pile in after something has already shot up, because everyone else seems to be getting rich. It often leads people to buy near the top.

Panic selling is the opposite: selling after a big drop to make the pain stop. It locks in losses and often means missing the recovery. Together, these lead to buying high and selling low, the reverse of what investors want.

Overconfidence

After a few wins, it's easy to feel like an expert. Overconfidence leads people to trade too often, bet too much on single ideas and underestimate risk. Frequent trading also adds costs and, in taxable accounts, taxes. Luck in a rising market can feel exactly like skill.

Home bias and other blind spots

Home bias is holding mostly investments from your own country, or even your own employer, because they feel familiar. The US is a large part of the world stock market, but far from all of it, and for investors in smaller countries, home bias can mean very concentrated risk. Holding lots of your employer's stock is double exposure: your job and your savings depend on the same company.

Other common traps: anchoring (fixating on the price you paid) and loss aversion (research suggests a loss can feel about twice as painful as an equal gain feels good, so people hold losers too long hoping to break even).

Example: The cost of buying high and selling low (illustrative)

Jordan buys $5,000 of a hot stock after it doubled, at $100 a share: 50 shares.

It falls 40% to $60. Jordan panics and sells: 50 x $60 = $3,000, a $2,000 loss.

A year later it's back at $90. Holding would have meant a $500 paper loss instead of a $2,000 realised one. The price path was the same; the behaviour made the difference. (Of course, some stocks never recover, which is another reason to diversify.)

Key terms

FOMO
Fear of missing out: the urge to buy something because others are profiting from it.
Panic selling
Selling investments in fear after a drop, often locking in losses.
Overconfidence
Overestimating your own skill or knowledge, often after a few wins.
Home bias
Favouring investments from your own country or employer because they feel familiar.
Remember

Have a plan before emotions show up, and stick to it when they do.

Try it

Reflection: write one sentence describing what you'll do the next time the market drops 20%. Keep it somewhere you'll see it.

Check yourself

1A stock has tripled in a month and everyone online is talking about it. You feel an urge to buy right now. Which trap is this? foundation

2Why can holding lots of your employer's stock be risky? foundation

3After a string of winning trades, someone starts trading every day with bigger amounts. What trap might they be falling into? foundation

Go deeper free, from the source
Smart habits
Lesson 22 of 29 · 4 min

Spotting hype and scams

Red flags

'Guaranteed' high returns: real investments with high return potential carry risk. Anyone guaranteeing big returns is either mistaken or lying. Pressure to act now: 'only today', 'don't tell anyone'. Scammers rush you so you don't think or check.

Unregistered sellers: in the US, you can check brokers and advisers on FINRA BrokerCheck and the SEC's Investor.gov. Other countries have their own regulators and registers. Be wary of anyone asking you to pay in crypto, gift cards or wire transfers to strangers, and of 'mentors' you met on social media or dating apps.

Pump-and-dump

In a pump-and-dump, promoters buy a cheap, little-traded stock or crypto token, then hype it online with exciting claims. As new buyers rush in, the price jumps. The promoters sell at the top, the price collapses and late buyers are left with big losses. This is illegal market manipulation, but it still happens, especially with tiny stocks and new tokens.

Meme mania and hype

Sometimes crowds pile into a stock or token because of online buzz rather than the business behind it. These meme surges can create huge gains for some and huge losses for others, very fast. Not all hype is fraud, but when the story is mostly 'it's going up because everyone's buying', the price can fall just as fast when the buying stops.

Healthy questions: How does this make money? Who is telling me, and what do they gain? What happens if I'm wrong?

Example: Anatomy of a pump-and-dump (illustrative)

A promoter buys 1 million shares of a tiny company at $0.50: cost $500,000.

After a hype campaign, the price climbs to $2.00. The promoter sells everything for $2 million, a $1.5 million profit.

Without the hype, buyers vanish and the price falls back to $0.40. Someone who bought 1,000 shares at $2.00 for $2,000 now holds $400, an 80% loss.

Key terms

Pump-and-dump
A scheme where promoters hype an asset to raise its price, then sell to late buyers before it collapses.
Ponzi scheme
A fraud that pays earlier investors with money from newer investors instead of real profits.
Meme stock
A stock whose price is driven mainly by social media buzz rather than business results.
Remember

Guaranteed returns, pressure to hurry and anonymous hype are warning signs to walk away from.

Try it

Next time a story in the digest mentions a stock jumping on online buzz, ask the three healthy questions from this lesson before forming an opinion.

Check yourself

1A stranger online promises '20% a month, guaranteed' if you send crypto. What's the best read? foundation

2In a pump-and-dump, who usually loses money? foundation

3A tiny company's stock jumps 300% in a week on social media buzz with no news from the company. What's a sensible response? foundation

Go deeper free, from the source
Smart habits
Lesson 23 of 29 · 5 min

Account types and taxes: the basics

Regular brokerage accounts

A taxable brokerage account is the most flexible: you can put in and take out money any time. The trade-off is taxes on dividends, interest and profits from selling.

Retirement accounts in the US

A 401(k) is a workplace retirement plan. Money usually goes in from your paycheck before income tax, grows without yearly tax and is taxed when you withdraw it in retirement. Many employers add a match, extra money when you contribute; if one is offered, it's worth understanding, because it's part of your pay.

An IRA (individual retirement account) is one you open yourself. With a traditional IRA, contributions may be tax-deductible now, and withdrawals are taxed later. With a Roth IRA, you contribute money you've already paid tax on, and qualified withdrawals in retirement are tax-free. Roth contributions have income limits. Many 401(k)s also offer a Roth version.

These accounts have yearly contribution limits that change, so check the current limits. Withdrawing before age 59 and a half usually means taxes plus a penalty, with some exceptions. Other countries have their own versions, such as ISAs and pensions in the UK, or TFSAs and RRSPs in Canada.

Capital gains in one paragraph

When you sell an investment for more than you paid, the profit is a capital gain. In the US, gains on investments held one year or less are short-term and taxed like ordinary income; gains on investments held more than a year are long-term and usually taxed at lower rates. You only owe tax when you sell (the gain is 'realised'), losses can offset gains, and none of this applies inside retirement accounts while money stays in. Rules vary by country and change over time, so check current rules or ask a tax professional.

Example: Traditional vs Roth (illustrative, same 20% tax rate)

You have $1,000 of earnings to invest and pay a 20% tax rate both now and in retirement.

Traditional: the full $1,000 goes in. Say it triples to $3,000. You pay 20% on withdrawal and keep $2,400.

Roth: you pay $200 tax first and invest $800. It triples to $2,400, withdrawn tax-free. You keep $2,400.

Same result when tax rates are equal. The choice depends mainly on whether you expect your tax rate to be higher or lower later.

Key terms

401(k)
A US workplace retirement account, often funded from your paycheck before tax.
Roth IRA
A US retirement account funded with after-tax money; qualified withdrawals are tax-free.
Capital gain
The profit from selling an investment for more than you paid.
Employer match
Money an employer adds to your retirement account when you contribute.
Remember

Account type decides when you pay tax, so know the rules before choosing where to invest.

Try it

Look up '401(k)', 'IRA' and 'Roth IRA' in the glossary. Then, reflection: does your job (or a future one) offer a retirement plan or match?

Check yourself

1What is the key difference between a traditional IRA and a Roth IRA? intermediate

2In the US, you sell a stock for a profit after holding it for 8 months. How is the gain generally treated? intermediate

3Why might someone invest in a taxable brokerage account even though it has fewer tax breaks? foundation

Go deeper free, from the source
Smart habits
Lesson 24 of 29 · 4 min

Using the daily news without overreacting

Headlines are built to grab you

News has to be interesting, so moves get dramatic words: 'stocks plunge', 'markets soar'. Often the actual move is 1% or 2%, which is normal. Before reacting, check the percentage and ask whether it actually changes anything about your long-term plan. Usually it doesn't.

Use news to learn, not to trade

Daily news is a great teacher. Each story is a chance to see the ideas from this course in action: an earnings beat with weak guidance, bond yields rising after an inflation report, a meme stock spiking. Ask: what was expected, what happened and why did prices react?

What news is bad at is telling you what to do with long-term money. By the time a story is public, prices have usually already moved. Reacting to every headline mostly adds stress, costs and the traps from earlier lessons.

A healthy daily routine

Read the app's daily digest for a few minutes. Glance at the market strip to see the S&P 500, Nasdaq, Dow, 10-year Treasury and Bitcoin, and tap the (i) on anything unfamiliar. Look up new words in the glossary. Take the daily quiz to lock in what you learned. Use the prediction game and paper trading to test your ideas with virtual money, not real money.

Then close the app and get on with your day. The goal is understanding, not constant action.

Example: Putting a 'plunge' in perspective (illustrative)

A headline says 'Dow plunges 600 points'. With the Dow at 40,000, that's 600 / 40,000 = 1.5%.

Suppose your broad stock fund grew from $10,000 to $11,000 over the past year. A similar 1.5% drop takes it to $10,835: down $165 today, but still up about 8.4% on the year. A bad day, not a disaster.

Key terms

Headline risk
The tendency of dramatic news to trigger hasty decisions.
Priced in
When news is already reflected in an asset's price because investors expected it.
Daily digest
The app's daily summary of market stories, written to help you learn.
Remember

Read the news to understand the market, not to react to it.

Try it

Read today's digest and pick one story. In one sentence, explain which lesson from this course it connects to. Then take the daily quiz.

Check yourself

1A headline says 'Stocks tumble!' What's the best first step? foundation

2Why is trading on news you just read often a poor strategy? intermediate

3What is the best use of the prediction game and paper trading? foundation

Go deeper free, from the source
How traders think (and why it's hard)
Lesson 25 of 29 · 5 min

Moving averages: reading a trend

What a moving average is

A moving average is the average closing price over the last few days, recalculated every day. A 5-day average (MA5) follows the price closely; a 20-day average (MA20) is slower and smoother. Averages iron out daily noise so you can see the direction underneath.

Stacked averages = a trend

Trend-followers look at how the averages are stacked. When the short one is above the medium one and that is above the long one (MA5 > MA10 > MA20), recent prices are higher than older prices: an uptrend. Stacked the other way (MA5 < MA10 < MA20) is a downtrend. Tangled together means sideways.

A golden cross is when a shorter average crosses above a longer one (a trend may be starting); a death cross is the opposite. Many traders watch the 50-day and 200-day averages for this.

Don't chase, and 'support'

The tool our TrendBot copies measures bias: how far the price is above its 5-day average. Its rule is "don't chase": more than 5% above the average scores low, because prices that run far ahead of their average often fall back.

Support is a price level where buyers have tended to step in, such as a rising moving average. A price that dips to its 10-day average and bounces is said to be 'holding support'.

The catch

Moving averages only describe the past. They lag: by the time the averages line up, much of the move may already have happened, and in sideways markets they flip back and forth, giving false signals.

Example: Reading a stacked trend (illustrative numbers)

A stock closes at $606. Its 5-day average is $612, its 10-day $594 and its 20-day $570.

612 > 594 > 570, so the averages are stacked upward: an uptrend. The price is about 1% below its 5-day average, a small dip in an uptrend, which trend-followers call a 'pullback' rather than a reason to panic.

Key terms

Moving average (MA)
The average closing price over the last N days, updated daily.
Golden cross / death cross
A shorter moving average crossing above / below a longer one.
Support
A price level where buying has tended to stop declines, such as a rising average.
Lagging indicator
A measure built from past prices, so it confirms moves after they start.
Remember

Moving averages describe the trend so far, clearly and simply, but they can't tell you what happens next.

Try it

Open Play and read TrendBot's latest moves: each one names the trend and how far the price is from its 5-day average. Can you explain one in your own words?

Check yourself

1A stock's 5-day average is above its 10-day, which is above its 20-day. What does that describe? foundation

2Why do trend-followers avoid buying when the price is far above its 5-day average? intermediate

3What is the main weakness of moving averages? intermediate

Go deeper free, from the source
How traders think (and why it's hard)
Lesson 26 of 29 · 5 min

Volume, MACD and RSI: the momentum gauges

Volume: how many shares changed hands

Volume shows how much trading is behind a move. Traders compare today's volume with its 5-day average (the volume ratio). A price rise on heavy volume suggests many buyers agree; a quiet, low-volume dip in an uptrend is read as a calm pause. A drop on heavy volume is the warning sign.

MACD: are the averages speeding up?

MACD compares a fast average (12 days) with a slow one (26 days), using exponential averages that weight recent days more. The gap between them is the MACD line. When it crosses above its own 9-day average (the signal line), momentum is turning up; crossing below, it is fading. Above zero means the short-term trend is above the longer one.

RSI: has it risen too fast?

The Relative Strength Index scores recent gains against recent losses from 0 to 100. Above 70 is called overbought (risen fast, may cool off); below 30 is oversold (fallen fast, may bounce). Strong trends can stay 'overbought' for a long time, so it's a description, not a signal on its own.

Putting it together: the 100-point checklist

TrendBot uses the open-source tool's checklist: trend 30 points, not chasing 20, volume 15, MACD 15, support 10 and RSI 10. A total of 80+ is labelled 'strong buy', 60 to 79 'buy', 40 to 59 'watch', below 40 'reduce' or 'sell'.

It's careful and transparent, but notice what's missing: no earnings, no news, no valuation. It only reads the price chart.

Example: One stock through the checklist (illustrative)

Uptrend with the averages spreading apart: 30/30. Price 1% below its 5-day average: 20/20. Quiet volume on a down day (0.6× normal): 15/15. Holding its 10-day average: 5/10. MACD positive: 8/15. RSI 63: 8/10.

Total 86/100, 'strong buy' by the checklist. Whether the stock actually rises next is a different question.

Key terms

Volume ratio
Today's trading volume divided by its recent average.
MACD
Moving Average Convergence Divergence: the gap between a 12-day and a 26-day average, compared with its own 9-day average.
RSI
Relative Strength Index, 0 to 100; above 70 'overbought', below 30 'oversold'.
Overbought / oversold
Labels for prices that have risen or fallen unusually fast.
Remember

Volume, MACD and RSI describe how strong a move is; combining them into a score is tidy, but it's still only the chart.

Try it

Look at TrendBot's moves on the Play page and find one with RSI above 60 and one below 40. What does each say about the recent move?

Check yourself

1A stock falls 3% on twice its normal volume. How do chart readers usually see that? intermediate

2What does an RSI of 78 describe? intermediate

3What does the 100-point checklist NOT look at? intermediate

Go deeper free, from the source
How traders think (and why it's hard)
Lesson 27 of 29 · 6 min

Classic chart strategies

Riding a trend

Trend following: only look at stocks whose averages are stacked upward, and prefer buying on calm dips rather than after big jumps. The tool's default strategy is exactly this.

Pullback (they call it 'shrink-volume pullback'): in an uptrend, wait for a quiet dip back to the 5- or 10-day average on low volume, on the idea that the trend is resting, not ending.

Golden cross: a short average crossing above a longer one, ideally with rising volume, is read as a trend starting.

Breakouts and ranges

Breakout: a price closes above a level it kept failing to pass (say, its 20-day high) on at least twice normal volume. The idea: buyers finally won. Many breakouts fail and fall back, called a false breakout.

Range (box) trading: when a stock bounces between a floor and a ceiling for weeks, some traders buy near the floor and sell near the ceiling, until the range breaks.

Reversals, patterns and sentiment

Bottom reversal: after a long fall (15%+), a day with 3× normal volume and a close above the open is read as sellers running out. It's riskier: falling prices often keep falling.

Candlestick patterns: named shapes in daily price bars, like one strong up day, three small down days and another strong up day.

Sentiment cycle: crowds swing from fear to greed. Very low trading activity can mark gloom near a bottom; frantic activity can mark euphoria near a top. Easy to see afterwards, hard in real time.

Popular theories with little evidence

The tool also ships Elliott wave theory (markets move in five waves up and three down) and Chan theory, a Chinese system of price structures. Both are popular, but they're flexible enough to explain almost anything afterwards, and there's no solid evidence they predict prices.

Example: A breakout that fails (illustrative)

A stock tops out at $50 three times in two months. One day it closes at $51.20 on 2.5× normal volume: a textbook breakout.

Two days later a weak earnings guide sends it back to $47. The chart signal was 'right' by its rules, and the trade still lost: news the chart couldn't see won.

Key terms

Trend following
Buying what's been going up and selling what's been going down.
Pullback
A temporary dip within an ongoing trend.
Breakout / false breakout
A move through a key level; a false one quickly reverses.
Range trading
Buying near a recurring floor and selling near a recurring ceiling.
Remember

Chart strategies are stories about crowd behaviour. They're useful for understanding how traders think, but none works reliably.

Try it

Pick a stock on a company sheet and look at its chart. Is it trending, in a range, or neither? Which strategy above would a trader try, and what could go wrong?

Check yourself

1What does a 'breakout' trader look for? intermediate

2Why are bottom-reversal strategies riskier than trend following? intermediate

3What's the main problem with Elliott wave and similar theories? advanced

Go deeper free, from the source
How traders think (and why it's hard)
Lesson 28 of 29 · 5 min

Beyond the chart: factors and news

Factor investing

Researchers have found a few traits, called factors, linked to higher long-run returns across decades and countries. The tool's stock screens use them:

Value: cheap prices relative to earnings or assets. Quality: profitable companies with steady results and cash flow. Momentum: stocks that rose over the past 6 to 12 months tend to keep rising for a while. Low volatility: calmer stocks have historically done about as well as wild ones, with smoother rides. Dividends / blue chips: large, steady companies that pay out cash.

But factors come and go

Each factor can lag the market for years. Value, for example, trailed growth stocks for much of the 2010s. Factor funds exist, but they need patience and low costs, and the edge may shrink once everyone knows about it.

News strategies: 'priced in'

Event-driven trading reacts to earnings, mergers, regulations or product launches. The tool's key question is whether the news is already reflected in the price. Good news that everyone expected often moves nothing; the price moves on the surprise (the gap between expectations and reality).

Hot themes (AI, a policy, a new technology) pull in money fast. Real beneficiaries and companies that just mention the theme rise together at first, and the hype fades faster than the business.

Example: Good news, falling price (illustrative)

Analysts expect earnings of $2.00 a share. The company reports $2.05, a 'beat', and the stock falls 4%.

Why? Many investors had hoped for $2.20, and next quarter's guidance was cautious. The price had already priced in more good news than arrived.

Key terms

Factor
A trait (value, quality, momentum, low volatility) linked to long-run returns.
Momentum (factor)
The tendency of recent 6 to 12-month winners to keep outperforming for a while.
Priced in
Already reflected in the price because investors expected it.
Event-driven
Strategies built around company or market events like earnings or mergers.
Remember

The best-studied edges (value, quality, momentum, low volatility) are slow, patient and can lag for years; news moves prices only when it surprises.

Try it

In today's digest, find one story about earnings or news. Was it a surprise, or was it expected? How did the stock react?

Check yourself

1Which of these is a 'factor' studied over decades of data? foundation

2A company beats earnings forecasts but its stock falls. What's the most likely reason? intermediate

3What's the main downside of factor strategies? intermediate

Go deeper free, from the source
How traders think (and why it's hard)
Lesson 29 of 29 · 5 min

Why most strategies fail (and what TrendBot teaches)

Costs and taxes eat small edges

Active strategies trade often. Each trade has costs (spreads between buy and sell prices, sometimes fees) and, in a taxable account, short-term gains are taxed at higher rates. A strategy that beats the market by 1% a year before costs can easily lose after them.

Overfitting: rules that only fit the past

Try enough rules on old data and some will look brilliant by pure chance. That's overfitting: the rule memorised the past instead of learning something real. It usually stops working the moment it meets new data. A related trap is survivorship bias: studying only the stocks or traders that survived makes the past look easier than it was.

Markets adapt

Prices quickly reflect widely known information, an idea called the efficient-market hypothesis. Markets aren't perfectly efficient, but once a simple pattern is public, many traders exploit it until it fades. That's why simple chart rules rarely keep an edge.

Most professionally managed stock funds trail a simple index fund over long periods once their fees are counted.

The TrendBot experiment

TrendBot on the Play page runs the open-source tool's 100-point checklist every day with play money and real prices, in public. Compare it with the S&P 500 over the coming months. Whatever happens, you learn something: if it wins, ask whether it's skill or luck; if it lags, you've seen why most investors are better off with a low-cost index fund.

Example: How a small edge disappears (illustrative)

A strategy earns 9% a year before costs; the index fund earns 8% and charges 0.03%.

The strategy trades 50 times a year at about 0.1% cost per trade (5% a year), and short-term taxes take more. The 1% 'edge' turns into roughly 4% a year behind the index before taxes, and further behind after them.

Key terms

Overfitting
A rule tuned so closely to past data that it fails on new data.
Survivorship bias
Drawing conclusions only from the winners that are still around.
Efficient-market hypothesis
The idea that prices quickly reflect available information.
Backtest
Testing a strategy on historical data to see how it would have done.
Remember

Most strategies fail because of costs, overfitting and competition; a low-cost index fund is the hard benchmark to beat.

Try it

Check the ⚖️ Skill leaderboard on Play. Is TrendBot beating the S&P 500 so far? Check again in a month.

Check yourself

1What is 'overfitting'? foundation

2Why do simple chart rules rarely keep an edge? intermediate

3A strategy beats the index by 1% a year before costs but trades every week. What's likely after costs and taxes? intermediate

Go deeper free, from the source

For learning only, not personal financial advice. Rules and account types differ by country; examples use US accounts.

esc

Try “inflation”, “P/E ratio” or “Nvidia”.

Keep your streak everywhere

Sign in to sync your streak, stories read, quiz scores and watchlist between your phone and computer. Optional: reading, lessons and quizzes work without an account; the Play games (calls, paper trading, leaderboards) need one.

No password needed. We only store your progress; see About.

Pick a username

This is how friends find you and how you show up on leaderboards, so it's public. Your email stays private: don't use it (or your full name) here.