A Brief Introduction To Investments

Written by on July 4, 2012 in Money - No comments | Print this page

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Coins growing with investment

Investing is not difficult. Learn the basics and start investing with confidence.

There are multiple types of investment vehicles, but they almost all fall into one of three categories.  Equity, debit, and combination.  Equity is simply a fancy word for partial ownership, debit is lending others a set amount of money, and combination is buying the rights to earnings from a middleman that has invested in both equity and debit.
There are many forms of all three.  This article will talk about the most common of each one.  Stocks, bonds and mutual funds.  These are three things that any investor must understand before doing any trading.

Bonds.  Bonds are lending money to either governments or corporations.  After a set time period they back that loan with interest.  Bonds are relatively risk free.  It is very, very bad for governments or corporations to default on debits, so buying bonds from stable and strong countries or businesses is nearly risk-free.  The down side is that bonds have very low return rates.

Stocks.   Buying stocks is buying a share within the company.   Owning stock allows one to attend share-holder meetings and vote on the direction of the company.  From an investment standpoint stocks work in two ways.

  1. As an owner in the company the stock holder is payed a portion of the companies profit(a dividend).
  2. Stocks fluctuate in value.  By buying stocks at low prices then selling them at high prices it is possible to make money in the trading of stock.

Stocks normally have higher rates of return than bonds. They are also more risky.  Dividends are rarely worth very much,  investment in stocks is a bet that the value of the stock will raise.  If that does not happen then the investor has wasted time and money.

Mutual Funds.  A mutual fund is a collection of many stocks and bonds that are managed by a professional finance manager.  The advantages of mutual funds is they spread the risk out among many different stocks and bonds, and the manager has expertise in investing that many small investors do not.

Mutual Funds have multiple risk/reward ratios as there are many different mutual funds each with a different combination of stocks and bonds.

Investing is complicated.  There are many nuisances to every form of investment.  It is important to do a lot of research before doing any investing.  This article is just meant to be a primer for the most basic  types of investments.

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About the Author

Matt Brand

Matt Brand is QLR's money saving expert. His experience with credit cards and student loans have made him take a strong interest in personal finance, saving money and sharing his knowledge. He is passionate about teaching others how to avoid the trap and make smart financial decisions. View all posts by Matt Brand.