What is a Stock, Anyway? Understanding Common Investments
July 17, 2020
You’ve got a little money stashed away, now it’s time to start investing. But what are those things your broker, financial advisor, and even your relatives are telling you to buy? Financial terms can start to sound like a foreign language, and the explanations only confuse things further. How are you supposed to figure out what’s best for you, if you can’t even figure out what the darned things are? Here’s a quick reference for what some of the most common investment vehicles really are underneath all the sales talk.
A stock is basically part ownership of a company. When you buy or sell a stock, you are buying and selling a small portion of ownership in the company. There are several different kinds of stock, like common and preferred, which give you different rights as an owner. A stock exchange, like the one in New York, is simply a place where people buy and sell stocks to other people.
A bond is a loan. When you “buy” a bond, you are really loaning your money to the entity (usually a company or government body) offering the bond, who agrees to pay you interest on the loan and eventually give you your money back. One of the most well known kinds of bonds is a Savings Bond, where you are loaning your money to the United States Government.
Mutual Funds –
A mutual fund is created when a whole bunch of investors pool their money together and buy a whole bunch of different investments. When the fund is set up, the investors decide on an investment goal, then one person, called the fund manager, decides what to buy and sell with the investment money to best serve the goals of the mutual fund. Mutual funds are commonly offered as investment choices in 401(k) plans.
An option is when you are buying or selling not the investment (such as a stock) itself, but the right to buy or sell it to someone else before a future date. The option will define what you can do (such as buy or sell), at what price, and the date that right expires. You pay a fee to get the option, separate from any money you may pay or receive as a result of deciding to use the option. Options are considered a high risk investment choice, and should be entered into with caution.
Variable annuities –
A variable annuity is a complicated investment to understand, because it is a variation of an annuity. At its simplest, an annuity is when you put money into an account, and the company gives you income in the future based on that money, usually in the form of a monthly check. A variable annuity allows you to invest the money inside of your account in what are called subaccounts. The variable annuity company offers you a selection of different investment choices, most commonly mutual funds, and lets you tell them how much of the money in your account to put into each. The subaccounts can then can go up or down in value, the same as traditional investments.
Choosing the right investment for you is a highly individual choice. There are several platforms where you can invest your money such as haus kaufen ohne EigenKapital. There are a lot of details to consider. You need to be very careful and you need to be strategic as well. Each type of investment has many variations, and a lot of different options to consider. But at least now you have an idea of what it is you have to choose from!