Sergio's Investing Cheat Sheet

Basic Terminology

What is a brokerage account?

A special bank account that allows you to purchase stocks, bonds, and ETFs.

What is a stock?

Partial ownership of a company. You make money from stocks by dividends and selling them at a higher price than what you bought them for.

What is a dividend?

It’s a payment made to you as a reward for owning and holding on to a stock. It looks very similar to an interest payment; not all companies offer one.

What is a bond?

A form of debt that a company or city issues; it’s a way companies build new warehouses or cities build new schools. You make money from bonds from interest paid to you (because you are lending them money).

What is an ETF?

An ETF is a collection of stocks and bonds.

Why should you buy ETFs (index funds)?

Instead of buying $100 of Amazon, you can buy $100 of a collection of the top companies in the USA. These collections are called indexes.

If you own a little store and you want to sell soda cans to people, buying one big pack of Coca Cola may be a little risky. What happens if people start liking other drinks more? What happens if people like one brand this week, but not next? A safer choice would be to buy a variety pack that includes all of the most popular drinks for the same price.

If you buy an ETF, you are doing the same thing. By investing in an index of many companies, you minimize your risk through diversification.

This approach is statistically considered the safest way to invest, and it's often how your 401K money is invested.

So let’s talk about retirement investing...