Stocks are also known as "shares" or "equity" in a company. Companies sell shares in order to raise capital for their business. Purchasing a stock can lead to an increase in value through the stock price itself rising or through dividends paid to investors. Stocks are also able to decline in value when the stock price itself decreases or if a company were to declare bankruptcy. In the long-run, stocks have outperformed most other types of investments.
There are two types of stock: common and preferred. Common stock is the most common type; it generally gives the shareholder voting rights that are directly correlated to the number of shares owned. Preferred stock owners generally do not have voting rights but they receive dividends before common stock investors. If a company happens to go bankrupt, the preferred stockholders are paid before common stockholders.
Bonds are a fixed income investment that can be issued by corporations or governments. These entities generally do this to create funding for an upcoming project. Bonds are very similar to a loan where the entity is selling the bond and trying to raise cash. Whereas the investor is receiving payments and interest on the coupon dates and the maturity date.
There are many characteristics of a bond; the Face Value is how much the bond will be worth at maturity. The Coupon Rate is the interest rate that the bond issuers will pay on the face value of the bond. Coupon Dates are the times that the payments will be made. Maturity Date is when the bond will reach maturity and the face value will be paid. The Issue Price is the price at which the bond is originally sold.
New York Stock Exchange
For people all across the world the New York Stock Exchange (NYSE) is a representation of securities trading. The NYSE is the largest stock exchange in the world in term of market capitalization.
A mutual fund brings together funds from many investors to invest in different investment vehicles. Each of the investors own a number of shares of the fund proportional to the amount of money that they have invested. One of the main benefits of a mutual fund is diversification of assets. If you own stock in a company and it goes down then you lose money but in a mutual fund if one asset loses value it has the possibility of being balanced out by another asset that has increased in value. Mutual funds can still lose value, they will not always be balanced out by the diversification of their assets but simply have the chance.
Exchange-Traded Funds also known as ETFs is a basket of securities that can be traded like a stock. ETFs can contain stocks, bonds, commodities, or a mixture of investments. ETFs commonly follow certain industries or markets- for example they could follow the S&P 500, healthcare, banking, etc.