If you’re just starting out on your investment journey, it’s important to get a grasp on financial instruments such as stocks, bonds, and ETFs.
They can prove to be excellent wealth-creation tools if used wisely.
This story will simplify all the concepts for you so that you can understand the very basics of investing.
Let’s try to get you acquainted with these financial products.
Understanding stocks
Stocks
Stocks are ownership stakes in a company and are commonly called shares or equities.
When you buy a stock, you essentially purchase a fraction of ownership in the company and become a shareholder.
The worth of stocks can vary depending on the company’s performance and market conditions.
Investors can benefit from stocks either via dividends or by selling them for a higher price than they paid.
Exploring bonds
Bonds
Bonds are debt securities issued by corporations or governments to raise capital.
When you purchase a bond, you lend money to the issuer in return for periodic interest payments and return of principal at maturity.
Bonds are considered less risky than stocks but offer a lower potential return.
They can be an integral part of a diversified investment portfolio.
Introduction to ETFs
ETFs
Exchange-Traded Funds (ETFs) are investment funds that trade on stock exchanges, much like individual stocks.
They are a collection of assets (stock, commodity, or bonds) that generally track an index.
ETFs provide the benefit of diversification and generally have lower fees than mutual funds.