The Basics of Investing
Understanding Investment Vehicles
Stocks
Stocks represent ownership in a company. When you buy a stock, you're purchasing a small piece of that company, making you a shareholder. The value of your investment can increase or decrease based on the company's performance and market conditions.
Bonds
Bonds are debt instruments issued by governments or corporations. When you buy a bond, you're essentially lending money to the issuer in exchange for regular interest payments and the return of the principal amount at maturity.
Exchange-Traded Funds (ETFs)
ETFs are investment funds traded on stock exchanges. They typically track an index, sector, commodity, or other assets, and can be bought and sold throughout the day like stocks. ETFs offer diversification and often have lower fees compared to mutual funds.
Key Investment Concepts
- Diversification: Spreading investments across different assets to manage risk
- Asset Allocation: Distribution of investments among different asset classes
- Market Capitalization: Total value of a company's outstanding shares
- Dividend: Distribution of company profits to shareholders
- Capital Gains: Profit from selling an investment at a higher price than purchase