Beginners Guide to Investing

When you are new to investing, it is useful to start with the beginners guide to investing. There are many beginners guide to investing books that will explain all the basics of investing as well as all the basic types of investments such as stocks, bonds, and mutual funds.

What is a stock?

A stock is an equity investment or a share of a corporation. When you buy a stock, you own a piece of the company, unlike bonds or other investments. A stock holder is also called a shareholder. There are common stocks as well as preferred stocks which carry lower risks. There are also different classes of stocks. See, Pros and Cons of Stocks.

 What is a bond?

An investor can also invest in a bond. A bond is not an ownership of a company but a loan that pays interest over a period of time. Bonds are considered much safer investments than stocks but there are also risky bonds. Bonds are sometimes called fixed income securities, see pros and cons of bonds.

What is a mutual fund?

A mutual fund is a basket of investments. A mutual fund can contain stocks, bonds, other investments or a combination of them. Unlike buying stocks, when an investor buys a mutual fund, he/she does not own the stocks or the investments themselves. Mutual fund investing has many advantages such as allowing small investors to invest in diversified portfolios. Mutual funds are managed by mutual fund managers. Investors cannot choose what stocks or bonds to invest in their mutual funds. See pros and cons of mutual fund.

What is an annuity?

Some investors prefer to sacrifice some return on investment in exchange for a guarantee when investing in the stock market. If an investor invests in the stock market directly, he/she will have no guarantee of the return. However, when investing in an annuity which is a product of an insurance company, the insurance company usually guarantees a minimum return on investment as well as the principal. See pros and cons of annuities.

Other than the investments above there are other ways to invest such as cash investing, see common types of investments. Some investments also have the added tax benefits, see tax free vs tax deferred. Besides common investments there are more complex investments such as options and forward contracts, see How do forward contracts work.