2. How Investing Actually Works

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You don't need to understand everything. You need to understand these building blocks well.

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Stocks

A stock is a small piece of ownership in a company. You make money in two ways: the price goes up because the company grows its profits, and some companies pay you part of their profits as dividends. Single stocks can also fall a lot or go to zero if the company fails.

ETFs (exchange-traded funds)

An ETF is a basket of many investments that you buy in one click, like a stock. A global stock ETF can hold thousands of companies from dozens of countries. This is why ETFs are the core of this system: instant diversification at a low cost.

Things to check on any ETF:

What index it tracks (for example a global, US or European index)
TER (total expense ratio): the yearly fee. For broad index ETFs, look for low fees, often well under 0.3% a year
Accumulating vs distributing: accumulating ETFs reinvest dividends automatically, distributing ETFs pay them out to you
Fund size and currency

Note for US investors: you can buy US-listed ETFs directly with any US broker, and many have very low fees.

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Note for European investors: many US-listed ETFs are not available to retail investors in the EU because EU rules (PRIIPs) require a standardised Key Information Document that US funds usually don't provide. That's why European investors typically buy UCITS ETFs listed in Europe instead (EU Personal Finance).

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Bonds

A bond is a loan to a government or company that pays you interest. Bonds usually move less than stocks and can soften the ride. Young, long-term investors often hold few or none; the closer you are to needing the money, the more they make sense.