Stocks, Bonds, and Mutual Funds Explained

By: Carissah M. Swiss


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.
If you want to invest in the stock market, you have to know a little about what you are doing. When a company goes public, they begin to sell shares of stock on a public stock exchange such as the New York Stock Exchange (NYSE). One share of stock has a price which continually fluctuates on a daily basis. Your goal is to buy a share of stock at one price, and then sell the share at a higher price on a later date.
When you buy stock, you are buying part of the company. As a shareholder, you own part of the company. You are able to vote in the company, but usually just when voting for who will be on the board of director.
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.
They are rated in a lettering basis. For example, a AAA bond has very little risk but often have a low interest rate. As they go fro AA to BBB to CC and so on, they get riskier and riskier but offer a higher 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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Do you want to know how to invest in commodities or how to invest in financial derivatives? Learn about investing before you get started.

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