Investing

There are two primary methods of analyzing stocks: technical analysis and fundamental analysis.

Earnings per share (EPS) is simply the company’s total dollar earnings for a given period, divided by the number of shares outstanding.

An exchange-traded fund (ETF) is a pooled form of investment that is designed to track an index, sector, or commodity, such as oil or gold.

Options trading is the buying or selling of options, which have a value apart from that of the underlying shares.

Dividends are portions of a company’s earnings that are paid out to shareholders. They might be distributed to a shareholder on a consistent basis or as a one-time payment.

Risk tolerance is a term that describes an investor’s willingness to consider that an investment could come at a loss.

The term “bear market” is used to describe a downward trending stock market. A bear market is the inverse of a bull market, which is an extended period of rising stock prices.

Hedge funds and index funds take almost diametrically opposed approaches to investing. Hedge funds use active management strategies while index funds seek a passive approach.

The S&P 500 is an index made up of individual companies. As such, investors can’t buy a piece of the S&P 500 itself. Rather, they can buy shares of index funds that track the S&P 500 index.

Active investing is a buy-and-sell strategy in which investors take frequent action in a bid to achieve growth greater than that of the broader market in the short term.

An active investing strategy requires investors to be engaged constantly, staying educated on market shifts and frequently buying and selling stocks to try to beat the market.

Hedge funds were not designed with the average investor in mind. For the majority of investors, participating in a hedge fund will be difficult because managers have sole discretion about who can join.

Some mutual funds are also index funds, but more often, mutual fund managers actively manage the fund to try to outperform an index.

The S&P 500 is typically regarded as the benchmark for US equities and has produced average annual returns of about 10%, or a bit more than 7%, adjusted for inflation.

There are a couple of notable similarities between mutual funds and hedge funds and several differences. They are both pools of money collected from individual and institutional investors.

Hedge funds are for the wealthy and big institutions, and getting into them requires more money, tolerance for risk, and patience than most investors have.

The S&P 500 Index tracks 500 of the largest companies that trade on major US stock exchanges. More than 80% of these companies pay dividends.

Companies are invited to join the S&P 500 based on their market capitalizations and other criteria that indicate their financial stability.

Although low costs are one of the advantages of exchange-traded funds, they still come with fees that reduce an investment’s overall return.

Every ETF is different: Some come with fees or may lack diversification because they follow one type of asset.

ETF investing is a relatively simple way to build a diverse portfolio. Investors usually start by doing research, understanding the ETF expenses, and figuring out how much to invest.

An index fund is a type of fund that tries to mirror the performance of a benchmark market index, such as the S&P 500 stock market index. Investors can use a brokerage or retirement account to purchase exchange-traded funds (ETFs) or mutual funds that track indexes.

An inverse ETF, often known as a bear or short ETF, is an exchange-traded fund designed to profit from a market decline. These short-term, publicly traded investments are utilized by investors who believe that a particular market or individual security will lose value in the near future.

Index mutual funds and ETFs give investors a way to invest in different indexes. Investors can look for funds that track international markets, domestic indexes, specific sectors, or meet other criteria.

Spread trading is a strategy of gauging how the price difference between two securities or contracts—the spread—will change. A spread trader is focused more on the price difference and less on the prices themselves.

Put simply, a commodity fund is an investment that focuses on the trade of physical commodities.

A portfolio is a collection of a person’s investments across asset classes, such as stocks, bonds, cash, and real estate. Assets may be owned outright, or they may be subject to a vesting schedule.

Technical analysis is a method of analyzing stocks that studies historical market details and mines data from behavioral economics and quantitative analysis to predict the market’s direction in the future.

A stock market bubble is when share prices climb too far beyond fundamental values. The steep ascent is almost always followed by a sudden plunge.

Price is the main driver behind stock charts. Charts show where a stock is trading at a particular moment compared with where it traded in the past. Investors use this price picture to form an opinion about the stock’s prospects.

Some of the most common ways to diversify a portfolio include diversifying in different asset classes, within each asset class, and in different markets around the world.

Cyclical stocks are shares of companies whose performance tends to follow the ups and downs of the economy.

A SPAC is a sort of shell company that doesn’t have its own operations, but rather is created to raise money through the sale of shares in an IPO and then use the money to buy an existing company.

A bond is a loan made to a corporation or government entity. Instead of getting funds from a bank or elsewhere, the company or other borrower raises money from investors who buy its bonds.

Fundamental analysis is a method of attempting to determine the intrinsic value of a stock, using publicly available financial information.

Low-float stocks tend to be relatively few in number. Those that are low-float have lower trading volume, less market liquidity, wider price spreads, and more volatility.

The Nasdaq is the second-largest major stock exchange, strongly reflecting the market moves of tech and high-growth companies, including those in biotech and health care.

An investment advisor is a professional or company that provides certain kinds of investment advice to others or issues reports on securities.

The price of a stock is determined by supply and demand. If more people want the stock than the number of shares available, the price goes up.

A dividend yield is the financial ratio that measures the percentage a company pays annually per dollar you invest in it.

The most common types of stock orders are market orders, limit orders, and stop-loss orders.

Growth investing is a strategy that centers around building an investor’s capital at an accelerated pace. It focuses on companies, markets, and assets that are expected to appreciate at an above-average rate.

A market order is an investor’s instruction to buy or sell now, at the best available price. On the contrary, a limit order is an order with a specific price limit.

A robo-advisor is a digital investment tool that automates portfolio management. Your target asset allocation is determined by your current financial situation and your future goals.

Hedging allows investors to purchase protection from potential losses. Although hedging isn’t without its own risks and costs, hedging strategies may give investors more stability and certainty in their positions.

Dividend growth investing is a popular strategy with many investors. It entails buying shares in companies with a record of paying regular and increasing dividends.

The Dow Jones is an index made up of 30 of the biggest and most important US companies, and is one of three major stock indexes investors use to measure stock market performance.

An initial public offering (IPO) is when a previously privately held company sells shares to the public for the first time to either raise capital or broaden its base of investors.

A stock exchange is a market where securities such as stocks and bonds are bought and sold.

DRIPs allow investors to use their dividends to buy more shares of the company or fund without having to actively initiate a transaction.

The main differences between the two lie in how they trade on securities markets and the tax liabilities they can create for investors.

A buy stop order is an order to a broker to purchase a security at a higher price than the current market price. It means the investor wants to catch a rising trend in a security’s price.

A market order is an order to buy or sell a security at the going market price, and it usually works better if the stock is highly liquid.

A stock market correction is a temporary decline in the value of an index or the price of an individual asset, typically 10% to 20% down from a recent market high.

Risk is simply a reality of investment. Understanding how to measure and manage risk can help you decide how to allocate your own assets.

Active investors generally manage their portfolios, while passive investors might build their portfolios through managed investment strategies.

Indexes that track groupings of stocks are called stock market indexes. Several major U.S. stock market indexes are often used as benchmarks and referenced in financial news.

A bull market, or a bull run, is an extended period of rising stock prices. A bull market is the inverse of a bear market, which is a downward trending stock market.

An investment time horizon is the amount of time you need to hold onto an investment before you sell it. Learn the difference between short, medium, and long-term horizons.

Value investing is a strategy based on buying undervalued investments and holding on to them for an extended period of time. Learn about the principles of value investing.

An investment is a financial or physical asset purchased with the goal of generating income. Types of investments include stocks, bonds, ETFs, mutual funds, and more.

Rather than buying and selling these investments in a matter of days, weeks, or even months, long-term investments can be held for years or even decades.

Compound interest works by using the continual multiplication—or compounding—of an amount of money, over a set number of cycles, within a set period of time.

Rate of return allows us to make clear comparisons among investments, which is essential. It puts them on a common scale.

“High-yield investments” usually refer to corporate bonds issued by companies with low credit ratings & offer the potential for returns that top the market average.

Simply put, the rate of return (ROR) is the gain or loss for any investment, in percentage terms, for a given period of time.

Over the long term, the average historical stock market return has been about 7% a year after inflation.

Wondering where to invest $1,000 right now? Here are nine investment options that offer a diverse range of exposure and risk to help you achieve your goals.

A fractional share is anything less than a full share in a publicly-traded company. They give investors a chance at ownership of companies with high stock prices.

A price-to-earnings ratio, or P/E, refers to the relationship between a company’s stock price and its earnings, or net income.

A mutual fund is a type of investment that pools a group of investors’ resources to access a bundle of stocks, bonds, or other securities.

The debt-to-equity ratio reveals the amount of debt, or liabilities, a company carries in relation to how much shareholder equity it has.

The Rule of 72 is an easy, concise equation that calculates the amount of time your investment will need to increase its value twofold.

Stop-limit orders are used as a strategy for controlling risk when trading financial assets such as stocks, bonds, commodities, and foreign exchange.

The S&P 500, short for the Standard & Poor’s 500 Index, is a stock market index that consists of 500 of the largest publicly traded companies operating in the U.S.

A brokerage account is a financial tool that allows you to invest in stocks, bonds, exchange-traded funds, options and mutual funds.

Employee stock options are a way that companies compensate workers, by providing them the right to buy shares of a company at a set price.

To help you understand the stock market, its terminology and rules, investment strategies, what type of investor you are, and how to invest in stocks, here’s a beginner’s guide.