What do you know about investments? Hardly anything? Does financial news and any financial information in general just confuse you beyond a doubt? Fortunately even the most financially illiterate can learn the basics of investments.
When you are investing in stock, your goal is to buy stock at one price and sell it at a higher price on a later date for profit. Shares of stock are issued by public companies on a stock exchange in order to raise money for their business. These prices fluctuate on a daily basis.
Owning a share of stock means you own part of the company. The firm issues stock in order to raise money for their company to grow. If you own stock, you are a shareholder. As a shareholder, you are able to vote in the company and have some say. Although, usually you just vote on who you want to be on the board of directors, and they make decisions for the firm.
Stock is an equity investment because you own part of the company whereas a bond is a debt investment because you are lending the company money. When you buy a bond, you don’t own any part of the company. When a company wants to borrow money, they will sell bonds. You will earn a certain percentage on each bond you buy.
You can hold a bond until it matures or you can sell it. Bonds can be traded. Government bonds are the least risky investment and corporate bonds having ratings to show how risky they are.
For example, an AAA bond has very little risk, but will usually not give you a very high return. A bond that is rated at BB or lower is considered a junk bond because it has high risk but potential for a very high return.
A mutual fund is a mix of stocks, bonds, or both. You give your money to a mutual fund manager who pools your money in with other people’s money. He buys stocks and/or bonds that he feels will get a high return.
No-load mutual funds are mutual funds that charge no fees. These types of funds, and any mutual funds for that matter, are a popular choice among investors because you don’t have to do the investing yourself.
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