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An Overview of Stocks, Bonds and Funds |
| | | Before you jump into learning about the markets, you need to have a baseline foundation of knowledge. These are the basics. If you find that the information in this article is new to you, please be sure to read Understanding the Markets first. 
The financial markets are made up of all kinds of complicated investment types, but if you want to build a solid, profitable portfolio you really only need to have an understanding of these three categories: Stocks, funds and bonds.
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Stocks
When a company wants to raise money, it can issue stock. When it does so on the major exchanges, the company is said to have "gone public." This means anyone can purchase that company's stock on the market. The stock is sold in "shares," and the value of a share determines your gain or loss on the purchase of the stock. Some companies also return business profits to shareholders in the form of dividends.
Many factors influence a stock's price, and it's important you learn the basics. That's what this site is all about.
Funds
You've probably heard of mutual funds, and you may even own some in a 401(k) or IRA. But what is a mutual fund? How does it work? Are there other kinds of funds?
Mutual funds are designed to batch a bunch of stocks or bonds together into a single pool to either mimic or outperform the general market. There are some pros, and some significant cons to mutual fund investing, and you need to understand them all before you can really take control of your investments.
Growing in popularity are Exchange Traded Funds (ETFs). ETFs get their name by virtue of the fact that they are traded on the stock exchanges, just like company stocks. ETFs are like mutual funds, in that they are a pool of investment types. But ETFs also have some pros and cons to get your mind around. In addition, ETFs are a great tool for investing in oil, gold, currencies and other markets, and it's as easy as buying a stock.
Bonds
Governments and companies can also raise money buy selling bonds. A bond guarantees an annual rate of return over a certain period of time. For instance, a US Treasury Bills (T-bills) may return you 3% for one year. Long-term bonds usually carry a higher interest rate and are a popular investment that's conservative and carries little risk.
Countries, States, cities, companies and other entities can all make bond offerings to the markets. We'll discuss the different types and the factors that influence them as we continue.
You can buy bonds as an individual investors just as easily as buying a stock in your brokerage account.
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