Stocks, Bonds and Mutual Funds Explanation
Do you have financial illiteracy? Do you open CNBC just to find yourself completely at a loss by what they say? Do you want to have at least new content about investing so that you can chat with your friends about the "market"? Do not worry, the foundation is not as hard as you think.
If you want to invest in the stock market, you have to know what you are doing. When the company went public, they began to sell shares on public exchanges such as the New York Stock Exchange (NYSE). The price of a stock fluctuates every day. Your goal is to buy the stock at one price and then sell it at a higher price on a later date.
Having a share means that you own a part of the company. The company issued shares to raise funds for the company to grow. If you own a stock, you are a shareholder. As a shareholder, you can vote in the company and have a say. Although, usually you just vote for who wants to be on the board, they make decisions for the company.
Stocks are treated as equity securities because you own a portion of the company. Bonds are considered debt securities because you lend the company money and you do not own any bonds. You can buy bonds from a government, state, bank, or company. If you buy a $ 1,000 bond that matures in 10 years and pays a real interest rate of 5% per year, you will receive $ 50 per year until the end of the decade, when they will pay $ 1,000.
You can hold bonds to maturity, or you can buy and sell them. Bonds purchased from government are usually almost free of risks. Company and municipal bonds have a rating that will tell you how much risk they have. For example, the risk of AAA bonds is small, but usually does not give you a high return. Bonds rated BB or lower are considered junk bonds because of their high risk but high potential for return.