Stocks, Bonds, and Mutual Funds for Beginners

Everyone hears and reads about how wise it is to invest your money and allow your money to work for you. I agree with this sound advice as I have put it into practice myself. You now ask what and where should I invest my money?

There are a wide variety of investments such as gold, commodities, real estate, art, collectibles, and etc. I could go on and on about the many options that are available to you. In this article, I am going to talk about the basics of the most popular investments that are chosen by beginning investors. Those investments are stocks, bonds, and mutual funds.

Let's begins with stocks. What is a stock? A stock is a piece of equity or ownership in a corporation. Stocks come in units that are called shares. Each share is worth a certain amount of money. This worth is referred to the market value. The market value is determined by how attractive the stock is to the investors (general people and investment pros) and how much they are willing to purchase it for.

Let's now talk about bonds. A bond is a loan that you give to a company for a specified period of time. When you purchase a bond, your money becomes the principal investment. The issuer of the bond then agrees to pay you interest on the principal.

Bonds have a maturity date attached to them. A maturity date is simply when your principal is paid back to you along with the interested you have earned. Your interest rate depends on the maturity date. The longer you have to wait on your maturity date, the higher your interest will be on the bond. For example, a five year bond will have a higher interest rate than a three year bond.

Finally, let's talk about mutual funds. Mutual funds are a mixture of the two. A mutual fund is where investors combine their cash together for the sake of investing. The cash is called the fund's assets. The fund is handled by a person titled as the fund manager.

The fund manager buys stocks, bonds, or even a mixture of the stocks and bonds. These purchases are called the fund's holdings. All holdings are titled as the fund portfolio. With a mutual fund, your money is invested in many companies instead of just one.