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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.
Before you can invest in the stock market, you should know what you’re doing. A company cannot be traded on an stock exchange until it has gone public. When a company is public, it can issue shares of stock which can be bought and sold. Your goal is to purchase stock at one price and sell it for a higher price to make a profit.
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.
Stocks are different from bonds in that they are equity instruments. With a stock you own part of the company. When you buy a bond, you are lending the company money. When a company needs to borrow money, they sell bonds. When you buy a bond, they give you an interest rate which is what you earn on the bond.
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.
Mutual funds are great for new investors or for those who aren’t interested in buying their own stocks but want a diversified portfolio. No-load funds are a popular choice because they charge no fees.
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