Lesson 3 of 5 · 5 min read
The words about the market
Exchange, index, ETF, portfolio. Where it happens and what you do it with.
The exchange is a marketplace
The exchange is where shares change hands. It used to be a hall full of shouting people; now it's computers, but the idea is the same as a market: there's a price, there are buyers and there are sellers. You don't go there yourself. You hand your instruction to a broker, the firm where you hold your account, and they do the buying for you.
An index is a list that measures the market
When the news says the market went up, they usually mean an index. That's a fixed list of companies whose average is tracked. The S&P 500 follows five hundred large American companies, the MSCI World over fifteen hundred across the developed world, and practically every country has its own headline index as well. If such an index rises, those companies did well on average, even though one of them may have fallen hard.
An ETF is a basket
If you want pieces of five hundred companies, buying five hundred times separately is unaffordable and unworkable. An ETF solves that: it's one thing you buy, and all those companies are already inside it. Buy an ETF that follows the S&P 500 and you own a very small piece of all five hundred in one go. The name stands for exchange traded fund, which literally means "fund traded on the exchange", and tells you nothing else useful.
In practice
Fifty euros into one such basket gives you more spreading than fifty euros into one share. With one share, everything hangs on one company.
Your portfolio is all of it together
Your portfolio is the collection of what you hold: your shares, your baskets, and the money you haven't spent yet. In this app you'll find it on the Portfolio tab. Everything in one view, because the question that ultimately matters isn't how one share is doing, but how the whole thing is doing.
Stocky says
Spreading just means: don't put everything in one thing. It's the only free way to lower risk without giving up return.
Remember this
- The exchange is the marketplace; your broker is who buys there on your behalf.
- An index is a list of companies whose average measures the market.
- An ETF is one basket with many companies inside, bought in a single go.
- Your portfolio is everything you hold together, including uninvested cash.
There is a quiz for this lesson
3 questions that check whether it stuck. They live in the app, because a quiz nobody grades teaches nothing.
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