| An investor guide doesn't get more basic than this | | | | into your cash account for you. All of the money |
| introduction to stocks and bonds. Investing in | | | | in your account earns interest as well. |
| stocks is for investors in search of higher returns, | | | | When investing in stocks there are no guarantees |
| who are willing to accept significant risk. Investing | | | | that you will make money. Stock prices go up, |
| in bonds is for those who want to earn higher | | | | and they can fall like a rock. A company can |
| interest, at a moderate level of risk. | | | | decrease dividends, increase them, or stop paying |
| This basic investor guide will define stocks | | | | them. But if you own a stock and dividends are |
| (common stock) as shares of ownership in a | | | | paid, all investors get their fair share. |
| corporation like GE. These shares trade on stock | | | | Bonds are the flip side of the coin. When investing |
| exchanges, and their price fluctuates as they | | | | in bonds of a corporation you have no ownership |
| trade throughout the business day. In order to | | | | in the company. In fact, you are a creditor. They |
| buy or sell stocks, you must first open an | | | | owe you money payable on a future date. |
| account with a brokerage firm and deposit money | | | | Corporations, as well as government entities, |
| into a cash account. If you go with a discount | | | | borrow money from investors by issuing bonds. |
| broker you can buy or sell shares on your | | | | Here's a basic bond example. An investor pays |
| computer. It's quick, easy and cheap. Total | | | | $1000 for a bond issued by JKL Corporation. JKL |
| commission costs for a transaction can be less | | | | promises to pay $60 a year in interest to the |
| than $15. | | | | bond holder for the next 25 years, 6%. When the |
| As a basic investor guide, you can make money | | | | bond matures in 25 years the bond owner gets |
| investing in stocks two primary ways. First, by | | | | $1000 back. |
| selling a stock at a price higher than you paid for | | | | Like stocks, bonds are traded in the market by |
| it. For example, you buy 1000 shares of JKL at | | | | investors, so their price or value fluctuates. If you |
| $5, for a total investment of $5000. Your | | | | want to sell your JKL bond before it matures, you |
| brokerage firm takes $5000 plus commission | | | | can do so. If prices are down when you sell your |
| from your cash account to pay for the purchase. | | | | bond, you can take a loss. If prices are up, you |
| Within seconds of placing your order you own | | | | can profit. |
| part of JKL. If you later sell these shares at $7, | | | | Bonds are safer than stocks because they pay |
| you again pay a commision and have a profit of | | | | attractive interest rates. Investors buy bonds for |
| $2000, minus commissions. This money goes back | | | | the income they provide, and this income is fixed. |
| to your cash account, ready to go back to work | | | | Most stocks pay a modest dividend, averaging |
| when you make your next transaction. | | | | 2%, often less. The attraction of stocks: if a |
| Second, most stocks pay dividends four times a | | | | company prospers stock owners can benefit |
| year. If you hold JKL when dividends are declared | | | | from rising stock prices as investors bid up the |
| and paid, your brokerage firm will deposit them | | | | price of the shares. |