Stock Market Basics
The stock market isn’t a casino. See the actual math behind share prices, P/E ratios, and why dollar-cost averaging works.
The stock market isn't a casino — here's the actual math behind it. A share represents partial ownership of a real business with real earnings. Understanding P/E ratios, earnings yield, and compounding is the foundation of every sound investing decision.
P/E Ratio Simulator
How expensive is a share relative to its earnings?
P/E Ratio
25.0x
S&P 500 Avg
25x
Long-run historical average
Earnings Yield
4.00%
Return per $ invested
P/E vs S&P 500 Average (25x)
Earnings yield is the inverse of P/E. A P/E of 25.0x means you earn approximately 4.00% in earnings for every dollar you invest. Compare this to bond yields to judge relative value.
Historical Examples
What $1,000 became — illustrative approximate returns
Since 2014
Since 2014
Since 2014
Illustrative examples based on approximate historical returns. Past performance does not guarantee future results.
Index Funds vs. Active Management
The math of fees compounds against you
85% of actively managed funds underperform the S&P 500 over 10 years (SPIVA data). The math of fees compounds against you — even a 2% annual expense ratio quietly erodes a significant portion of your wealth over decades.
Index Fund (10%/yr)
0.03% expense ratio — S&P 500 ETF
$67,275
$10,000 over 20 years
Active Fund (8%/yr net)
2% expense ratio drag applied
$46,610
$10,000 over 20 years
Difference: $20,665 lost to fees over 20 years on a $10,000 investment.
Dollar-Cost Averaging Simulator
DCA vs. investing a lump sum upfront
Dollar-Cost Averaging
DCA Running Balance — First 12 Months
Lump Sum Upfront
Full capital works for all 10 years from day one, maximizing compound time.
DCA reduces the risk of investing at a peak — you buy more shares when prices are low. Lump sum statistically wins more often when markets trend upward, but requires more conviction and timing tolerance.
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