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