Investing can seem very confusing, and if you are just starting out, it can seem very difficult. There are many terms in the financial world that you may find difficult to understand, but knowing their meaning is important to make the right choice. Whether you are looking to increase your savings, prepare for retirement, or invest your money in a better way, these ten key terms related to investing will help you get on the right track.
- Stocks
Definition: Stock means that you are the owner of any one part of a company, so when you buy a stock, if the company makes some profit, then a small part of that profit comes to you, which is called dividend.
Why it matters: You can earn a side income by buying stock. By using this work you also become the owner of the company and if the company’s business grows, then you also see a lot of profit. But the price of stock changes very quickly, so their prices keep increasing or decreasing in a short time!
- Bonds
Definition: A bond is a type of loan that is given by an investor to a company or government. When you buy a bond, you are lending money to a company or government and in return you get interest from time to time. And bonds have a period, when the bond’s period is over, you get your entire money back.
Why it matters: Bonds are considered safer than stocks because they guarantee regular income and return of your investment. But, compared to stocks, the returns from bonds are slightly lower. For those who want to keep their money safe, bonds can be a good option!
- Mutual Funds
Definition: A mutual fund is a method of pooling money from many investors to buy a small amount of stocks, bonds or other assets. Each investor owns a portion of the mutual fund, which is a small part of that group.
Why it matters: Mutual funds allow you to spread your investments across multiple avenues without having to choose individual stocks or bonds. They are managed by professionals, so they’re considered good for people who don’t want to invest on their own. But keep in mind that mutual funds also cost some money, which are fees, which can reduce your overall profits.
- Exchange-Traded Funds (ETFs)
Definition: ETFs are similar to mutual funds, but they trade on a stock exchange like stocks. They typically track a particular index, such as the S&P 500, and can hold a variety of assets.
Why it matters: ETFs offer the same diversification benefits as mutual funds, but with lower fees and more flexibility. You can also buy or sell ETFs at any time throughout the day, giving you more control over your investments. This is a great thing; they are a great option for both beginners and experienced investors.
- Dividend
Definition: A dividend is a portion of a company’s earnings that is paid out to shareholders, usually in the form of cash or additional shares. Payments are usually made on a regular basis, such as every quarter.
Why it matters: Dividends provide a steady source of income and can often be used to buy more shares, increasing your chances of growing your capital. Companies that pay regular dividends are usually financially stable, so dividend-paying stocks are attractive to long-term investors.
