Exploring Investment Options
Explore the different types of investments that can help grow your money. These include stocks, bonds, mutual funds** and exchange-traded funds (ETFs).
Stocks, also known as equities, represent ownership in a company. They offer growth potential but carry more risk than other investments.
Bonds are a type of investment designed to aid corporations and governments to raise money by paying interest to investors. They offer lower risks than stocks and are often considered less volatile.
Stocks
Stocks are a common way to invest and can offer potential for high returns over time. However, they are also highly volatile and susceptible to price fluctuations.
By investing in shares of a company, you gain some residual claim to the company’s profits and assets, and may also be eligible for voting rights. You can invest in growth stocks, which are designed to grow rapidly, or value stocks, which focus on more established companies whose stock prices may not appropriately reflect their current worth.
Bonds are another investment option that can provide higher long-term returns than a savings account or bank CD, but they do not have the potential to increase in value as much as stocks. Additionally, bonds are subject to market volatility, and if a company defaults on its debt obligations, investors may lose money on their bond investments.
Bonds
Stocks, also known as equities, are pieces (shares) of ownership in a company. When the company does well, it can pay dividends to shareholders a percentage of the profits. Stocks offer the highest potential return, but also carry the most risk-reward ratio of any investment.
Bonds, which are considered fixed-income investments, provide steady income payments from interest accrued over time. They are typically the lowest-risk investment option and make up a key component of a diversified portfolio.
There are various types of bonds available, including government, corporate and mortgage-backed securities. Additionally, there are bond mutual funds and exchange-traded funds that manage a basket of bonds. In general, bond prices have inverse correlations to stocks. This makes them a good diversifier to a stock-heavy portfolio. However, they also carry their own unique risks and should be carefully evaluated.
Mutual Funds
When you invest in a mutual fund, you buy units (or shares) of the fund. The value of those units can go up or down, depending on the performance of the underlying securities that the fund holds. Mutual funds generally offer more diversity and liquidity than individual stocks or bonds.
Stocks have the potential to grow over time, but they also carry more risk and can fluctuate greatly in value. They are one of the most popular types of investments.
Bonds are a conservative investment that provides income over time. They usually pay out interest payments every month and then repay the original principal at a predetermined date. Investors typically earn a profit when bonds appreciate or yield more than the initial investment amount. Many investors choose to diversify their investments with both stocks and bonds. They may also consider using target-date funds that automatically move from higher-growth, higher-risk stocks to lower-return, lower-risk bonds as the date approaches for retirement or other goals.
Real Estate
Amid an economic environment where many investors are concerned about inflation, investing in real estate can provide a potential hedge against rising prices. It’s important to consider your personal financial goals, risk tolerance and investment time horizon before investing.
**Investment options such as stocks and mutual funds involve risks, including the potential loss of principal. Investors should carefully review the investment objective and summary of each fund before making a purchase decision.
Stocks are pieces (shares) of ownership in a company that can either make money when their value increases or by collecting regular dividend payments. Bonds are investments designed to aid governments and corporations in raising money by lending investors interest payments for a specific period of time. Both can be valuable assets in a well-rounded portfolio, depending on your investing goals and risk tolerance.