Investingisnt as hard as most people think, but theres a lot of jargon to learn.
Stocks and bonds are two common terms that come to mind when you think about investing.
Many people dont know the difference, so were going to break it down.
In basic terms, a stock is a piece of ownership in an individual company.
This is also known asequity.
Those numbers fluctuate over the years, depending on how the company performs.
And then there are bonds.
Instead of investing in the company itself, you give them money and they agree to pay you interest.
This interest is called a coupon, and its paid at a set rate and schedule.
The bond also comes with amaturity date:the date the issuer has to repay the amount they borrow.
you might also sell your bond before the maturity date.
Depending onwhat interest rates look likewhen you sell, you might get more or less than what you paid.
Because bonds are predictable this way, theyre calledfixed-income securities.
When the bond matures after a decade, youll get your $1,000 back.
Three years later in 2007, that same share was valued at about $300.
If you sold your share, you would make a $250 profit.
Most people dont just buy a single share, though.
you’re free to see how stocks are an excellent way to grow your retirement savings.
Then again, not every company is Google.
For this reason, stocks are generally considered a riskier investment, especially in the short-term.
In exchange for your risk, though, you get more reward.
Thats sort of what the S&P 500 is for.
Its a financial index thats made up of 500 of the most economically powerful companies in the United States.
Its also worth noting that investing all of your money in a single company isprobably a bad idea.
Most expertsrecommend mutual funds, groups of investments in a number of different stocks.
Again, you more or less know what youre getting with bonds.
Theyre considered to be safer investments than stocks, but they dont earn much money.
As you get closer to retirement, though, you want toinvest less in stocks and more in bonds.
You dont have as much time to be risky.
So how much should you invest in each category?
If youre more conservative, however, you may want to put 30% in bonds instead.
As you grow older, you should adjust these percentages accordingly.
The closer you get to retirement, the more stability you need in your investments.
You dont have as much time to take risks, in other words.
If your stocks fail, you only have so many years to wait until they bounce back again.
There are also plenty of tools that can help you figure out how much to invest in each.
Theres a lot more that goes into investing, of course.
There are different categories of stocks and bonds.
There are different ways stocks pay their shareholders.
