Do you ever feel financially illiterate? Do you turn on CNBC only find yourself completely dumbfounded by what they are saying? Do you wish you at least new something about investing so that you could chat with your friends about the 'markets'? Don't worry, the basics aren't as hard as you think.
If you want to invest in the stock market, you have to know a little about what you are doing. When a company goes public, they begin to sell shares of stock on a public stock exchange such as the New York Stock Exchange (NYSE). One share of stock has a price which continually fluctuates on a daily basis. Your goal is to buy a share of stock at one price, and then sell the share at a higher price on a later date.
Owning a share of stock means you own part of the company. The firm issues stock in order to raise money for their company to grow. If you own stock, you are a shareholder. As a shareholder, you are able to vote in the company and have some say. Although, usually you just vote on who you want to be on the board of directors, and they make decisions for the firm.
A stock is considered an equity security because you own part of the company. A bond is considered a debt security because you lend the company money, you don't own any of it. You can buy bonds from the government, state, bank, or a corporation. If you buy a bond for $1,000 that matures in 10 years with an effective interest rate of 5% paid annually, every year you will receive $50 until the 10 years are up at which time they will pay you back the $1,000.
You can hold bonds to maturity or you can buy and sell them. Bonds bought from the government usually have little to no risk. Corporate and municipal bonds have a rating that will tell you how risky they are. For example, an AAA bond has very little risk, but will usually not give you a very high return. A bond that is rated at BB or lower is considered a junk bond because it has high risk but potential for a very high return.
A mutual fund is a mix of stocks, bonds, or both. You give your money to a mutual fund manager who pools your money in with other people's money. He buys stocks and/or bonds that he feels will get a high return. Mutual funds are beneficial because you are able to diversify your money, meaning you reduce your risk by investing in many different securities or investments. No-load mutual funds are popular because they don't charge fees which puts more money back into your pocket.
If you are still looking for different ways of investing money and you want to learn more about investing and how you can start, go to LearnAboutInvesting.info
Article Source: http://EzineArticles.com/?expert=Samantha_Asher
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