KnowThisWellAdvanced analysis of financial markets and investment vehicles.
The stock market isn't a single place — it's a network of exchanges where ownership shares in companies are continuously priced by buyers and sellers, not by any company or government setting the price.
Buying one share of a mutual fund means owning a small slice of dozens or hundreds of different investments at once, not betting on a single stock.
A stock is an ownership claim with a variable, uncapped return; a bond is a loan with a fixed claim that gets paid before stockholders if the issuer goes bankrupt.
A dividend is a company paying out part of its value in cash, and the share price typically drops by about that amount on the ex-dividend date. Dividends are one part of total return, not free money on top of it.
An index fund doesn't pick stocks. It copies a published list, usually weighted by company size, so what you actually own depends entirely on the index's rules. The rules, and the fee, matter more than the fund's name.
Compounding means your returns start earning returns. At 7% a year, $10,000 grows to about $76,000 in 30 years, and most of that is growth on earlier growth. Time and fees matter more than people expect.
A bear market is a drop of 20% or more from a recent high in a broad index; a bull market is a rise of 20% or more from a low. The labels are conventions, not official declarations, and they are only ever confirmed in hindsight.
Diversification reduces risk because holdings that don't move together partly cancel each other's swings. It removes company-specific risk, not market-wide risk.
An IPO is the first time a private company sells shares to the public. Banks set the price with big investors the night before, so most people can only buy after trading opens.
When interest rates rise, existing bond prices fall, savings yields climb and future profits are worth less today. How much each investment moves depends mostly on how far away its cash arrives.