Stocks
The basics in plain language, the terms you'll run into, a starter list of ETFs, the best free sites to look up stocks, and a tool to explore options.
Core Concepts
Eight ideas that cover most of what a beginner needs to know. Each one is a short read.
What a stock is
A share of stock is a small piece of ownership in a company. Own one share of a company with 1 billion shares and you own one-billionth of it, including a claim on its future profits.
How stocks make you money
Two ways: the share price rises and you sell for more than you paid (a capital gain), or the company pays you part of its profits (a dividend). Over the long run, the S&P 500 has returned about 10% per year before inflation, with dividends making up a meaningful part of that.
Index funds vs individual stocks
An index fund buys every company in a list (like the S&P 500) for you, usually for a very low fee - instant diversification, no stock-picking required. Picking individual stocks can beat the market, but it concentrates your risk and takes real research. Most professional fund managers fail to beat their index over 10+ years, which is why index funds are the usual starting point.
ETFs vs mutual funds
Both are baskets of investments. An ETF trades on the stock market throughout the day like a single stock, and you can buy it at any brokerage. A mutual fund is priced once a day after the market closes, sometimes has a minimum investment, and certain ones can only be bought at the company that runs them. Many index funds come in both versions.
Diversification
Spreading money across many investments so no single one can sink your portfolio. If one company or sector has a bad year, the rest absorb the hit. It won't prevent losses when the whole market drops, but it smooths out the ride.
Dollar-cost averaging
Investing a fixed amount on a regular schedule (say, every payday) instead of trying to time the market. Some months you buy high, some low - over time it averages out, and it removes the guesswork of "is now the right moment?"
Brokerage accounts and SIPC
A brokerage account is where you buy and hold stocks, ETFs, and other investments. Most reputable U.S. brokerages are SIPC members, which protects up to $500,000 of your assets (including up to $250,000 in cash) if the brokerage itself fails. SIPC does not cover losses from the market going down.
Where you invest matters for taxes
The same ETF can be held in different account types. A 401(k) or traditional IRA lets you invest before taxes and pay tax when you withdraw in retirement. A Roth IRA or Roth 401(k) uses money you've already paid tax on, and qualified withdrawals in retirement are tax-free. A regular taxable brokerage account has no special tax treatment but no withdrawal restrictions either. If your employer matches 401(k) contributions, getting the full match is usually the first priority.
Key Terms
Grouped by when you'll run into them.
Buying and selling
- Ticker
- The short letter code a stock or fund trades under, like AAPL for Apple or VOO for Vanguard's S&P 500 ETF.
- Market order vs limit order
- A market order buys or sells right away at the best available price. A limit order only executes at the price you set or better, and may not fill at all.
- Bid / ask spread
- The bid is the highest price buyers are offering; the ask is the lowest price sellers will accept. The gap between them is a small hidden cost each time you trade. It's tiny for popular stocks and ETFs, and wider for thinly traded ones.
- Fractional shares
- Buying part of a share by dollar amount. With a $500 share price, $50 buys you 0.1 shares. Most major brokerages support this now.
- Capital gain
- Profit from selling something for more than you paid. Held over a year, it's a long-term gain and taxed at lower rates than a short-term gain, which is taxed like regular income.
- Cost basis
- What you paid for an investment, including any fees - and reinvested dividends add to it. Your taxable gain is the sale price minus your cost basis, so your brokerage tracks it for you and reports it on Form 1099-B.
Sizing up a company
- Market cap
- A company's total stock market value: share price × number of shares. A $50 stock with 2 billion shares has a $100 billion market cap. Commonly grouped as large-cap ($10B+), mid-cap ($2B-$10B), and small-cap ($300M-$2B). Smaller companies tend to swing more in price.
- EPS (earnings per share)
- A company's profit divided by its number of shares. $1 billion in profit across 200 million shares is $5 EPS.
- P/E ratio (price-to-earnings)
- Share price ÷ EPS, or how many dollars investors pay for each $1 of yearly profit. A $100 stock with $5 EPS has a P/E of 20. A high P/E means investors expect strong growth (or the stock is pricey); a low P/E can mean a bargain or a struggling business. The S&P 500's long-run average is roughly 15-16, though it has sat above 20 for much of the last decade. Compare P/Es within the same industry, since a normal P/E for a software company is very different from a utility's. Companies losing money don't have a meaningful P/E.
- Dividend yield
- Yearly dividends ÷ share price. A $100 stock paying $3 a year yields 3%. A very high yield can be a warning sign that the share price has fallen because investors expect the dividend to be cut.
- Volatility
- How much and how quickly a price swings. Higher volatility means bigger ups and downs, not necessarily worse long-term returns.
Funds
- Index
- A list of companies that represents part of the market, like the S&P 500 (500 large U.S. companies) or the Nasdaq-100 (100 of the largest non-financial companies on the Nasdaq exchange). You can't buy an index directly, only a fund that tracks it.
- Expense ratio
- The yearly fee a fund charges, as a percentage of what you have invested. It's taken out automatically, so you never see a bill. 0.03% on $10,000 is $3 a year; 1% is $100 a year - and the gap compounds. See What Fees Cost You below.
- Passive vs active
- A passive fund simply tracks an index. An active fund pays managers to pick investments, which usually means higher fees in exchange for a chance (not a promise) to beat the index.
- Target-date fund
- An all-in-one fund named for a retirement year (like "2060") that automatically shifts from stocks toward bonds as that year approaches. Common in 401(k) plans.
The market
- Bull / bear market
- A bull market is a sustained period of rising prices. A bear market is a drop of 20% or more from a recent high.
- Correction
- A drop of 10% to 20% from a recent high. Corrections are common and happen every year or two on average.
- Sector
- A group of companies in the same line of business, like technology, healthcare, or energy. Owning many stocks in one sector isn't much diversification.
- Portfolio
- Everything you own across stocks, bonds, funds, and other investments.
- Rebalancing
- Periodically selling a little of what's grown and buying what's lagged, to get back to your chosen mix (for example, 80% stocks and 20% bonds).
What Fees Cost You
A fee that looks tiny compounds against you every single year. Compare two funds that earn the same return and differ only in expense ratio.
1% is typical of many actively managed funds and some 401(k) options; broad index ETFs often charge 0.03%-0.10%. Assumes a steady return compounded monthly, with the fee subtracted from that return. Results update as you type.
ETFs for Beginners
Low-cost, widely held funds that show up again and again in beginner portfolios. Any of these can be bought at a typical brokerage.
| Ticker | Fund | What you're buying | Expense ratio |
|---|---|---|---|
| Core U.S. stocks | |||
| VOO | Vanguard S&P 500 ETF | The 500 largest U.S. companies. The classic "buy the market" fund. | 0.03% |
| IVV | iShares Core S&P 500 ETF | Same index as VOO, from a different company. Pick one or the other. | 0.03% |
| VTI | Vanguard Total Stock Market ETF | Nearly every public U.S. company - large, mid, and small - in one fund. | 0.03% |
| SCHB | Schwab U.S. Broad Market ETF | Schwab's version of a total U.S. market fund, similar to VTI. | 0.03% |
| International and global | |||
| VXUS | Vanguard Total International Stock ETF | Thousands of companies outside the U.S., in both developed and emerging markets. | 0.05% |
| VT | Vanguard Total World Stock ETF | The entire global stock market, U.S. and international, in a single fund. | 0.06% |
| Tilts (add-ons, not a whole portfolio) | |||
| QQQM | Invesco Nasdaq 100 ETF | The Nasdaq-100: heavy on large tech companies. Higher growth potential and higher volatility, and it largely overlaps with the top of the S&P 500. Its sibling QQQ holds the same stocks for 0.20%. | 0.15% |
| SCHD | Schwab U.S. Dividend Equity ETF | About 100 U.S. companies with a record of paying and growing dividends. | 0.06% |
| Bonds | |||
| BND | Vanguard Total Bond Market ETF | Thousands of investment-grade U.S. government and corporate bonds. Steadier than stocks, lower long-term return. | 0.03% |
| AGG | iShares Core U.S. Aggregate Bond ETF | Very similar to BND, from iShares. | 0.03% |
Keep it simple
One broad fund like VTI, VOO, or VT is a complete starting portfolio on its own. A popular next step is the "three-fund portfolio": a U.S. total market fund, an international fund, and a bond fund (for example VTI + VXUS + BND).
Watch for overlap
Owning VOO, IVV, and VTI together isn't diversification - they hold mostly the same companies. More funds doesn't automatically mean less risk; check what's actually inside each one.
Check your 401(k) and brokerage
Your 401(k) may not offer these exact ETFs, but it likely has an S&P 500 or total market index fund - look for the one with the lowest expense ratio. Brokerages also have their own low-cost index mutual funds; Fidelity, for example, offers a few "ZERO" index funds with a 0% expense ratio.
Expense ratios change occasionally - confirm the current figure on the fund provider's website before buying. This list is educational, not a recommendation to buy any specific fund.
Where to Look Up Stocks
Free sites for checking a stock or fund's price, history, and basics. Start with the first two; the rest go deeper.
Or start here: Company Lookup
Type a ticker into my Company Lookup to see ten years of a company's revenue, profit, and share count, plus recent insider buying and selling, straight from its SEC filings and explained in plain language. It doesn't show live prices - use the sites below for those.
Google Finance
The simplest place to start. Search a ticker or company name to see the price, a chart, key numbers like the P/E ratio and dividend yield, and recent news - without a lot of clutter. You can also build a free watchlist.
Your brokerage's app
If you already have an account at Fidelity, Schwab, Vanguard, or another broker, its research pages are free, show live prices, and are where you'd actually buy. Fund providers' own sites (Vanguard, iShares, Schwab) also list each ETF's holdings and expense ratio.
Yahoo Finance
Quotes, charts, financial statements, analyst estimates, and ETF holdings, all free. Busier than Google Finance, and some extra tools are behind a paid plan, but the basics cover what most investors need.
Morningstar
The go-to for comparing mutual funds and ETFs: fees, holdings, past performance, and Morningstar's own ratings. Some research needs a subscription, but fund pages show plenty for free.
Stock Analysis
Ten-plus years of a company's revenue, profit, and other financial statement numbers in simple tables. A good next step once you want to look past the stock price.
SEC EDGAR
Every public company's official filings, straight from the Securities and Exchange Commission - like the 10-K annual report. Dense reading, but it's the original source everything else is based on.
Tips for beginners
- Look up the ticker symbol, not just the name - many companies and funds have similar names. VTI, for example, is Vanguard's Total Stock Market ETF.
- Free sites sometimes show prices that are a few minutes behind. That's fine for research; your broker shows the live price when you trade.
- A day's price move tells you very little. For index funds, the expense ratio and what the fund holds matter far more - see Beginner ETFs.
- Finance sites, social media, and "stock picks" newsletters mix news with opinion and ads. Anyone promising a sure thing is a red flag - see Scams & Fraud.
I'm not paid by or affiliated with any of these sites.
P&L Simulator
See what a single option position is worth at expiration across a range of stock prices, or how its value decays over time.
1 contract = 100 shares. This shows the payoff at expiration only - it doesn't account for time decay or volatility before then.
Hover or touch the chart for the exact stock price and P&L at any point.
What is an option?
An option is a contract that gives you the right, but not the obligation, to buy or sell a stock at a set price before a set date. You pay a small amount upfront (the premium) for that right — you're not buying the stock itself, you're buying a bet on where its price will go.
Call option
Gives you the right to buy a stock at a set price. You'd buy a call if you think the stock is going up — if it rises above your strike price, the option becomes more valuable.
Put option
Gives you the right to sell a stock at a set price. You'd buy a put if you think the stock is going down — it becomes more valuable as the stock falls below your strike price.
Key terms
- Strike price
- The fixed price at which you can buy (call) or sell (put) the stock, no matter what it's actually trading at.
- Premium
- The price you pay to buy the option itself — this is what you risk losing entirely if things don't go your way.
- Expiration date
- The date the contract ends. After this, the option is worthless if it hasn't been exercised or sold.
- In / at / out of the money
- Describes whether exercising the option right now would be profitable (in), break-even (at), or worthless (out) compared to the strike price.
- Intrinsic vs. extrinsic value
- Intrinsic value is the profit if exercised today. Extrinsic value is everything else priced in — mainly time remaining and volatility. Extrinsic value shrinks to zero as expiration approaches.
Why people use them
Income
Selling call options against stock you already own (a "covered call") collects premium in exchange for capping your upside.
Hedging
Buying a put against stock you own works like insurance — it limits how much you can lose if the price drops.
Speculation
Options let you control a lot of stock for a small upfront cost — that leverage can multiply gains, and just as easily multiply losses.
The risks, plainly
- •Options can expire completely worthless — unlike owning a stock outright, there's no "wait it out" if you're wrong before expiration.
- •Leverage cuts both ways: the same mechanic that multiplies gains multiplies losses just as fast.
- •Some strategies (like selling uncovered/"naked" calls) carry theoretically unlimited loss potential.
- •They're more complex than stocks — pricing depends on time, volatility, and the underlying price all at once, which takes real study to understand.
This page is educational only. Options aren't inherently reckless, but they're not a beginner's tool either — most brokers require an approval step before you can trade them for a reason.