LemonTrades
TL;DR
- You buy something that earns money: part of a company, a loan to a government or business, or property.
- You make money in two ways: income (dividends, interest, rent) and a rise in price. Together they’re your return.
- More possible return comes with more risk. Over long periods, stocks have returned about 10% a year, bonds less, cash less still.
- LemonTrades tells you what moved your investments, and why, as it happens.
Saving keeps your money. Investing puts it to work. Here’s how that work turns into a return.
What you can invest in
| You buy | You own | How you get paid |
|---|---|---|
| Stocks | A share of a company | Dividends, and a rising share price as profits grow |
| Bonds | A loan to a government or company | Interest, and your money back at the end |
| Funds (ETFs, mutual funds) | A basket of many stocks or bonds | Whatever the basket earns, minus a small fee |
| Property | A building or land | Rent, and a rising value |
| Cash | A bank deposit or money market fund | Interest |
| Gold, crypto | An asset that pays nothing | Only a rise in price |
Risk and return
| Long-run return a year | A bad year | |
|---|---|---|
| Cash | About 3% | Rarely loses money, but can trail inflation |
| Bonds | About 5% | −13% in 2022 |
| Stocks | About 10% | −37% in 2008 |
Rough long-run US averages, before inflation. The extra return from stocks is your pay for sitting through their bad years.
Compounding: the most important idea
When your returns earn returns of their own, growth speeds up. $10,000 earning 7% a year becomes about $19,700 after 10 years, and about $76,100 after 30. Most of that 30-year gain comes in the later years, which is why starting early matters more than starting big.
Spreading out
Any one company can fail, but a fund owning hundreds of them rarely suffers much from one. That’s why index funds like VOO are a common first investment. See what an ETF is.
Why fees matter
A 1% yearly fee sounds small. On a 7% return over 30 years, it leaves you with about 25% less money. Low-cost index funds charge under 0.1%.
Why prices go up and down
In the short run, prices move on news, interest rates and mood. Over years, they follow profits and income. See how stock prices are set and how the stock market works. Ready? See how to start investing money.
Sources
- Investor.gov: Introduction to investing
- Investor.gov: Compound interest calculator
- Investor.gov: Asset allocation
Education, not financial advice. All investing involves risk, including the loss of your money. See our disclaimer.
