investing: an overview

This is an—you guessed it—overview of what I learned about investing when I first went looking. I wrote it in 2022 for a few friends, and tidied it up for this page in 2026, updating the names and numbers that had changed since. It isn’t a complete guide to investing your money. It’s meant to help you start, because the start is the overwhelming part.

I lean towards quantitative information: definitions, ratios, numbers. Those are the things you come back to look up. The qualitative side (judgment, patience, knowing what you actually want) is harder to write down, and mostly something you build yourself.

This isn’t financial advice. I’m not a financial adviser, and nothing here is a recommendation to buy anything: funds and tickers are examples. Numbers go out of date, so check the current ones before you act on any of it.

How to read this

I gathered all of this with a very passive approach in mind: buy broad funds and hold them for a long time. If you’re after active investing or trading, it won’t help you much.

Some of it is objective, like what compound interest is or what goes into a financial statement. Some of it is subjective, like whether you should own bonds at all. Fundamentals, products, investment vehicles and sectors are mostly objective: definitions and general concepts. Portfolios are built from objective pieces, but how you put them together is opinion.

The big picture fits in three lines:

Products are the things you can own: stocks, bonds and commodities.
Vehicles are the ways you can own them: directly, or through mutual funds, index funds and ETFs.
Approaches are how hands-on you are: passive or active.

It’s a reference more than an essay, so jump around rather than reading it top to bottom. The resources at the end are where to go next.

Fundamentals

Money over time

Inflation: “In economics, inflation or price inflation is a general rise in price level relative to available goods resulting in a substantial and continuing drop in purchasing power in an economy over a period of time.” (Wikipedia) It’s usually measured with the consumer price index (CPI), which tracks the prices of a fixed basket of goods and services over time. It’s why returns are worth comparing after inflation (real returns) as well as before it (nominal returns).
Compound interest: reinvesting the interest or returns you earn, so that in the next period you earn on your original money and on the returns it has already made. $1,000 growing 7% a year becomes about $1,967 after 10 years, $3,870 after 20 and $7,612 after 30.

Company size

Market capitalization is the total market value of a company: the share price times the number of shares outstanding (market cap = price × shares). Companies are loosely grouped by it:

Size	Market cap
Mega-cap	over $200b
Large-cap	$10b to $200b
Mid-cap	$2b to $10b
Small-cap	$300m to $2b
Micro-cap	$50m to $300m

The boundaries are conventions, and index providers draw them slightly differently.

Financial statements

Public companies have to publish financial statements: in the US every quarter (form 10-Q) plus a fuller annual report (10-K). EU and UK rules only require them twice a year, though many large companies report quarterly anyway. There are three statements:

Balance sheet: what the company owns (assets), what it owes (liabilities) and what’s left for its owners (equity), at one point in time. It always balances: assets = liabilities + equity.
Income statement (or earnings statement): how the company performed over the period, from revenue and expenses down to net profit. This is where earnings are reported.
Cash flow statement: the cash coming into and going out of the company, split three ways: cash from core operations, from investing and from financing.

The filings around them also include management’s discussion and analysis, where the company explains its results in its own words. US companies’ filings are free on EDGAR.

Earnings and valuation

Earnings (E): the net profit a company made over a period.
Earnings per share (EPS): the earnings divided by the number of shares outstanding (EPS = E / shares): each share’s slice of the profit.
Price-to-earnings (P/E): the share price divided by the EPS (P/E = price / EPS). It tells you how much you’re paying for each dollar the company earns in a year, and is used to judge whether a stock is overvalued or undervalued, especially next to similar companies.
Book value: “The book value literally means the value of a business according to its books (accounts) that is reflected through its financial statements. Theoretically, book value represents the total amount a company is worth if all its assets are sold and all the liabilities are paid back.” (Investopedia)
Book value per share (BVPS): the book value divided by the number of shares outstanding.
Price-to-book (P/B): the share price divided by the BVPS (P/B = price / BVPS): how much you’re paying for each dollar of book value.
Growth companies don’t earn much yet relative to their price, but are expected to grow their earnings fast. They usually have a high P/E and P/B, and pay little or no dividends.
Value companies are mostly mature businesses that earn well relative to their price, but aren’t expected to grow much. They usually have a low P/E and P/B, and pay dividends.

Dividends

Dividend: “A dividend is a distribution of profits by a corporation to its shareholders. When a corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend to shareholders. Any amount not distributed is taken to be re-invested in the business.” (Wikipedia)
Declaration date: the day the company announces it will pay a dividend.
Record date: the company pays everyone on its list of shareholders at the end of this day.
Ex-dividend date: if you buy on this day or later, you won’t get the dividend. It exists because a trade takes time to settle, that is, for your name to land on the list. US and Canadian trades have settled in one business day (T+1) since May 2024, so there the ex-dividend date is usually the record date itself. Where trades take two days (T+2), as in most of Europe in 2026, it falls one business day before the record date. Weekends and holidays move it around, so always look up the actual date.
Payment date: the day the money arrives.
Dividend amount: the money paid per share.
Dividend yield: the yearly dividends divided by the current share price (yield = annual dividends per share / price): the dividend as a percentage of what the share costs.

Analysis

Technical analysis: studying charts of price and volume to predict where the price goes next.
Fundamental analysis: studying everything that can affect a company’s financial health: its earnings, its competitors, the economy, interest rates, employment, laws, and so on.

Efficient market hypothesis (EMH)

“The efficient-market hypothesis is a hypothesis in financial economics that states that asset prices reflect all available information. A direct implication is that it is impossible to ‘beat the market’ consistently on a risk-adjusted basis since market prices should only react to new information.” (Wikipedia)

If it holds even roughly, picking stocks is a losing game on average, which is a big part of the case for passive investing.

The business cycle

Economies move through four phases. Fidelity describes them like this:

Early: activity rebounds (GDP, industrial production, employment, incomes). Credit starts to grow, profits grow fast, policy is still stimulating the economy, and inventories are low while sales improve.
Mid: growth peaks. Credit growth is strong, profit growth peaks, policy is neutral, and inventories and sales grow until they balance out.
Late: growth moderates. Credit tightens, earnings come under pressure, policy turns contractionary, and inventories grow while sales growth falls. Inflation pressure is usually highest here.
Recession: activity falls. Credit dries up, profits decline, policy eases, and inventories and sales fall.

Those phases describe growth, the rate of change. Add the growth up over time and you get the size of the economy, real GDP: a line that wobbles through booms and recessions, but has trended upward over the long run. That long-run trend is what a passive investor is betting on.

Different sectors tend to do well in different phases.

Reading a chart: candles

Price charts usually draw each period (a day, an hour, a week) as a candle. Its body runs between the opening and closing prices, and the thin lines above and below it, the shadows or wicks, reach up to the period’s high and down to its low.

A rising candle (hollow) and a falling one (filled). Many charts color them green and red instead.

Products

Stocks

Private company: a company whose shares aren’t traded publicly. It’s owned by a small group of people: founders, employees, friends and family, and qualified investors.
Public company: a company whose shares trade freely on a stock exchange.
Stock (or shares): part ownership of a company. If you buy shares in a company, you own a proportional part of it.
IPO (initial public offering): when a company first sells its shares to the public. An investment bank usually underwrites it and sells the first shares, mostly to large institutional investors. After that, anyone can trade them on the exchange.
Market: anywhere buyers and sellers meet to trade.
Stock exchange: a market where stocks are traded. In the US: NYSE, Nasdaq and NYSE American (formerly AMEX). In Europe: Euronext, Deutsche Börse (Xetra), Nasdaq Nordic, the London Stock Exchange and others.
Broker: a firm that carries out your trades, for a fee.
Market order: an instruction to your broker to buy or sell right away, at whatever the price is.
Limit order: an instruction to buy or sell at a set price or better. It might never be filled.
Last price: the price of the most recent trade.
Bid: the highest price a buyer is offering right now, so the best price you can sell at immediately.
Ask: the lowest price a seller is asking right now, so the best price you can buy at immediately. The gap between the bid and the ask is the spread.
Volume: how many shares traded in a period.

Bonds

Bond: a loan you make to a government or a company, in the form of a security you can trade. The issuer pays you interest, and pays the loan back at the end.
Face value (also principal or par value): the amount you get back at maturity.
Maturity date: the date you get the face value back.
Coupon rate: the interest paid each year, as a percentage of the face value.
Price: what the bond trades for on the market today, which can be above or below its face value.
Yield to maturity (YTM): the yearly return you’d make if you bought the bond at today’s price and held it to maturity. It’s the discount rate in the bond pricing formula, the rate at which the bond’s future payments add up to today’s price, which is why prices and yields move in opposite directions.
Duration: the average time until you receive a bond’s payments, weighted by what each payment is worth today. It also measures how sensitive the bond’s price is to interest rates: a bond with a duration of 6 years loses about 6% of its price if interest rates rise by 1 percentage point, and gains about 6% if they fall by 1 point.

Bonds come from governments or companies (corporate bonds), and run for different terms: short-term (1 to 4 years), intermediate (about 4 to 10) and long-term (10 to 30 years). Their main risks:

Default: the issuer can’t pay you back. The risk rises from government bonds to corporate bonds to junk (high-yield) bonds.
Credit quality: rating agencies such as S&P, Moody’s and Fitch grade issuers, and a downgrade pushes the bond’s price down.
Interest rates: when rates rise, existing bonds paying less interest lose value, and the longer the duration, the more they lose.

Individual bonds vs bond ETFs and funds. Holding a bond yourself, you know exactly what you’ll get if you keep it to maturity: the interest, and then your principal back. But it takes a lot more money, and leaves you less diversified. A bond fund spreads a small amount across hundreds of bonds, but it never matures: it keeps replacing old bonds with new ones, so there’s no date on which you’re guaranteed your money back.

Commodities and other products

Gold, held directly or through gold ETFs (such as GLD and IAU in the US). The reasons people buy it:

Its supply is limited.
It has done well historically, though with long flat stretches: it didn’t pass its 1980 high again until 2008.
It diversifies a portfolio, because it has a low, sometimes negative, correlation with the stock market.
It’s seen as a safe haven, something people buy in a crisis.

Emerging markets ETFs hold companies in developing economies such as China, India, Taiwan and Brazil. They add growth potential and diversification away from the US, along with more political risk, currency risk and volatility. Examples are VWO (Vanguard) and IEMG (iShares).

Other products include silver, commodity index funds and trusts, cryptocurrency and currencies.

Investment vehicles

Indexes

An index tracks the value of a group of stocks, to stand for a market. The two best known are both American:

Dow Jones Industrial Average (“the Dow”): started in 1896, made up of 30 large US companies, and price-weighted, so companies with higher share prices count for more, whatever their size. Ticker: DJI.
S&P 500: about 500 of the largest US companies, chosen by a committee, and weighted by market cap, so bigger companies count for more. It’s the most used measure of the US stock market. Ticker: SPX.

Funds

Index fund: a fund that copies the performance of an index by holding what the index holds. The largest providers are Vanguard and BlackRock (iShares), followed by State Street (SPDR).
ETF (exchange-traded fund): a fund holding stocks, bonds, commodities or other assets, which trades on a stock exchange just like a stock. Most ETFs are index funds.
Mutual fund: a fund that pools investors’ money and has it managed by a professional, the portfolio manager. You buy and sell at the price set at the end of each day rather than on an exchange.
Closed-end fund: a fund with a fixed number of shares. It doesn’t issue new shares when people want to put money in; instead, investors trade the existing shares on an exchange, sometimes for more or less than what the fund’s holdings are worth.

S&P 500 ETFs hold the stocks in the index, in the same proportions, to match its return before fees. The biggest are SPY (the oldest and most traded, with a 0.0945% yearly expense ratio), and VOO and IVV (0.03% each). From 1970 to 2020 the S&P 500 returned about 10% a year on average, with dividends reinvested and before inflation, though individual years ranged as low as −37% (2008).

Investing from the EU? Brokers there usually can’t sell you US-listed ETFs like these, because EU rules require a key information document that US funds don’t publish. Instead you buy UCITS versions, listed in Europe and tracking the same indexes, such as Vanguard’s VUSA or iShares’ CSPX for the S&P 500 (tickers differ between exchanges). justETF is good for finding them.

Sectors

The Global Industry Classification Standard (GICS) sorts companies into 11 sectors, each split into industry groups and industries. The lists below follow the 2023 revision, the latest in force as of 2026; a review of how AI and semiconductor companies are classified was underway then, so they may change again.

Sectors respond to the business cycle differently. Fidelity’s research on how each has done relative to the whole US market in each phase:

Sector	Early	Mid	Late	Recession
Financials	+
Real estate	++			−−
Consumer discretionary	++	−	−−
Technology	+	+	−−	−−
Industrials	++			−−
Materials	+	−−	++
Consumer staples			++	++
Health care	−−		++	++
Energy	−−		++
Communication services		+		−
Utilities	−−	−	+	++

A plus means the sector tended to beat the market in that phase, a minus that it tended to lag, and a blank that there was no clear pattern. It’s history, not a rule.

Each sector below lists two US ETFs: the State Street SPDR fund, which is the biggest and most traded, and a cheaper alternative, usually Fidelity’s. When I first wrote this, the SPDR funds charged about 0.1% a year and the alternatives about 0.08%. Fees change, so check the current expense ratio before you buy.

Consumer staples

The things people buy whatever the economy is doing: packaged food and drinks, cleaning and personal hygiene products, household goods like paper towels, and alcohol, tobacco and cosmetics. How much people spend on them stays fairly fixed.

Industry groups: consumer staples distribution & retail; food, beverage & tobacco (beverages, food products, tobacco); household & personal products.
What moves it: not much. It’s non-cyclical, so it holds up in strong and weak economies alike.
ETFs: XLP, FSTA.

Energy

Every business involved in producing and selling energy: extracting fuel, and refining and distributing it.

Industries: energy equipment & services; oil, gas & consumable fuels.
What moves it: the health of the economy (GDP, employment and so on), the prices of commodities like oil and gas, and political events and regulation.
ETFs: XLE, FENY.

Materials

Commodity-related manufacturing: chemicals, construction materials, glass, paper, forest products and packaging, and metals and mining, including steel.

Industries: chemicals; construction materials; containers & packaging; metals & mining; paper & forest products.
What moves it: the health of the economy, commodity prices, demand for consumer goods, and the housing market.
ETFs: XLB, FMAT.

Industrials

Companies providing commercial and industrial products and services. It’s similar to materials, with two differences: industrials make finished goods rather than raw materials (a tractor maker is in industrials, a mining company in materials), and they sell services as well as products.

Industry groups: capital goods (aerospace & defense, building products, construction & engineering, electrical equipment, industrial conglomerates, machinery, trading companies & distributors); commercial & professional services; transportation (air freight & logistics, passenger airlines, marine transportation, ground transportation, transportation infrastructure).
What moves it: the health of the economy, how much businesses invest in equipment, and government spending on defense and infrastructure.
ETFs: XLI, FIDU.

Consumer discretionary

The things people go without when money is tight or their job feels uncertain, such as new clothes, new cars or entertainment. That makes it one of the most cyclical sectors. Amazon and Tesla are here, not in technology.

Industry groups: automobiles & components; consumer durables & apparel (household durables, leisure products, textiles, apparel & luxury goods); consumer services (hotels, restaurants & leisure, diversified consumer services); consumer discretionary distribution & retail (distributors, broadline retail, specialty retail).
What moves it: the health of the economy, disposable income and consumer confidence.
ETFs: XLY, FDIS.

Health care

Companies that provide medical services, make medical equipment or drugs, provide health insurance, or otherwise help get care to patients.

Industry groups: health care equipment & services (equipment & supplies, providers & services, health care technology); pharmaceuticals, biotechnology & life sciences (biotechnology, pharmaceuticals, life sciences tools & services).
What moves it: not the economy much. It’s non-cyclical, because people need care either way. Government policy, though, matters a lot.
ETFs: XLV, FHLC.

Financials

Companies providing financial services to businesses and consumers: banking, loans, credit, mortgages, insurance, wealth management and, since 2023, payment processors like Visa and Mastercard.

Industry groups: banks; financial services (financial services, consumer finance, capital markets, mortgage REITs); insurance.
What moves it: interest rates, since banks earn the gap between what they pay on deposits and charge on loans. It tends to do well early in the cycle.
ETFs: XLF, FNCL.

Information technology

Companies that research, develop and distribute technology: electronics, software, computers, and IT products and services.

Industry groups: software & services (IT services, software); technology hardware & equipment (communications equipment; technology hardware, storage & peripherals; electronic equipment, instruments & components); semiconductors & semiconductor equipment.
What moves it: the health of the economy. It tends to beat the market early and mid cycle, and lag late in the cycle and in recessions.
ETFs: XLK, FTEC.

Communication services

Telecom companies, with fixed-line or wireless networks, along with media, entertainment and internet services such as search and social media.

Industry groups: telecommunication services (diversified, wireless); media & entertainment (media, entertainment, interactive media & services).
What moves it: the health of the economy. Until 2018 this was the telecom sector, which stayed steady through the cycle. Then companies like Meta, Alphabet and Netflix moved in from technology and consumer discretionary, so it’s more cyclical now, and its past returns say little about its future.
ETFs: XLC, FCOM.

Utilities

Companies that provide or transmit electricity, gas or water to businesses and consumers, including producers of renewable energy, such as solar or hydro power, and companies that generate energy and sell it to utilities.

Industries: electric utilities; gas utilities; multi-utilities; water utilities; independent power & renewable electricity producers.
What moves it: not the economy much. It’s non-cyclical and considered a defensive sector. It’s usually heavily regulated, and sensitive to interest rates.
ETFs: XLU, FUTY.

Real estate

Real estate investment trusts (REITs), which own property and pay out most of their income, and companies that develop and manage real estate. It was split off from financials in 2016. High payouts have made it attractive when interest rates are low and falling.

Industry groups: equity REITs (diversified, industrial, hotel & resort, office, health care, residential, retail and specialized REITs); real estate management & development. Mortgage REITs, which lend rather than own, are in financials.
What moves it: the health of the economy, and interest rates.
ETFs: XLRE, SCHH (Schwab’s).

Portfolios

Diversification

Diversification is key. Ray Dalio calls it the holy grail of investing: combine 15 to 20 good return streams that aren’t correlated with each other, and you cut your risk sharply without giving up return. Assets in the same sector tend to move together (a correlation of around 0.6 is a commonly quoted figure), so 20 technology stocks are not 20 return streams.

The table shows why. Each asset has a volatility (yearly standard deviation) of 10%, and the portfolio holds them in equal amounts:

Correlation	1 asset	2 assets	5 assets	10 assets	20 assets
0.6	10%	8.9%	8.2%	8.0%	7.9%
0.4	10%	8.4%	7.2%	6.8%	6.6%
0.3	10%	8.1%	6.6%	6.1%	5.8%
0.1	10%	7.4%	5.3%	4.4%	3.8%
0	10%	7.1%	4.5%	3.2%	2.2%

With highly correlated assets, adding more barely helps: at 0.6, no number of assets takes the risk below 7.7%. With uncorrelated ones, 20 assets cut it to less than a quarter. (For n assets with volatility σ and correlation ρ, the portfolio’s volatility is σ × √(ρ + (1 − ρ) / n).)

Building one

Three common mixes, from simplest to most diversified: equity only; equity and bonds; and equity, bonds and gold. A passive investor fills each part with ETFs and index funds. An active one may add individual stocks.

How hands-on you are comes down to which of these decisions you take on, from least to most active:

Choose an asset allocation: how much goes into each asset class, such as 60% stocks, 30% bonds and 10% gold.
Select securities: which funds or stocks fill each part.
Rebalance: every so often, sell some of what has grown and buy more of what has shrunk, to get back to your allocation.
Tactical asset allocation: shift the allocation itself, based on where you think markets are heading.

Passive vs active

Passive: you take your fair share of the market’s return.
Active: you try to beat the market. The only way to do that is to be diversified differently from the market, which means you also take the risk of doing worse than it.

Investing vs trading

From least to most active:

Passive investing
Active investing
Swing trading, holding for days or weeks
Short-term trading, holding for minutes to a day

Resources

To learn more:

The Complete Investing Course (Udemy): a paid course covering most of what’s here in much more depth.
How to invest in index funds (The Motley Fool): a beginner’s guide.
How startup funding works (Adioma, archived): an infographic of how a company’s ownership is split up, from founding to IPO.

Data and research:

Yahoo Finance: free quotes, charts, financial statements and news.
Investing.com: quotes for nearly every market, and an economic calendar.
TradingView: charts.
EDGAR: the SEC’s database of US companies’ official filings, such as the 10-K and 10-Q.
Markets Insider bonds: bond prices and yields.

Funds:

Vanguard: the largest index fund provider.
justETF: finding and comparing ETFs you can buy in Europe.
ETF.com and ETF Database: holdings, fees and screeners for US ETFs.

Portfolios:

Portfolio Visualizer: test an asset allocation against historical data.
Portfolio Charts: compare well-known portfolios and how they’ve behaved over the long run.

A broker:

Interactive Brokers: a low-cost broker available in most countries.