Investment Basics

Why Investing Matters

A savings account earning 4% APY loses purchasing power to inflation over time. Investing in the stock market has historically returned about 10% annually (7% after inflation) — which means your money roughly doubles every 10 years. The earlier you start, the more compounding works in your favor.

Stocks (Equities)

When you buy a stock, you own a tiny piece of a company. If the company grows and becomes more profitable, its stock price generally rises. Stocks are higher risk but offer higher long-term returns than most other investments.

Key metrics to know: share price, market cap (total value of all shares), P/E ratio (price relative to earnings), and dividend yield (annual dividends as a percentage of price).

Bonds (Fixed Income)

A bond is a loan you make to a company or government. They pay you interest (the "coupon") at regular intervals and return your principal at maturity. Bonds are generally lower risk and lower return than stocks.

Why hold bonds? They reduce portfolio volatility. When stocks drop, bonds often hold steady or rise, cushioning your overall returns. This is why financial planners recommend a mix of both.

ETFs & Index Funds

An ETF (Exchange-Traded Fund) holds a basket of stocks or bonds and trades like a single stock. An index fund is an ETF (or mutual fund) that tracks a market index — like the S&P 500, which holds the 500 largest U.S. companies.

Index funds are popular because they offer instant diversification, low fees (often under 0.10% annually), and historically outperform most actively managed funds over long periods.

Asset Allocation

Asset allocation is how you divide your money between stocks, bonds, and other investments. The main decision is your stock/bond split — which depends on your age, risk tolerance, and timeline:

• Aggressive (90/10) — Mostly stocks. Higher growth, more volatility. Common for younger investors with 20+ year horizons.
• Moderate (70/30) — Balanced growth with some cushion. Common for mid-career investors.
• Conservative (40/60) — More bonds, less volatility. Common near or in retirement.

The classic rule of thumb: "hold your age in bonds" (so a 30-year-old would be 70% stocks, 30% bonds). Modern guidance suggests you can be more aggressive since people live longer and bonds yield less than historically.

Understanding Performance

Two numbers matter most when evaluating your portfolio:

• Total return — price appreciation + dividends. This is your actual gain or loss.
• Alpha — your return minus a benchmark (usually the S&P 500). Positive alpha means you're beating the market. Negative means you're underperforming.

Most individual investors underperform the S&P 500 after fees and trading costs. This is why index funds are so widely recommended — they guarantee market-matching returns at minimal cost.

How Promi Tracks Investments

Promi pulls your actual holdings from connected accounts — every ticker, share count, cost basis, and current value. It aggregates across all brokerages into one view with:

• Asset allocation donut chart by type and sector
• Per-holding gain/loss with cost basis tracking
• Portfolio performance vs. S&P 500 (your actual alpha)
• Contribution history and investment growth over time