Investing in the stock market is essentially buying a share of a company. You buy a small fraction of a company which you will own. Investors will usually purchase stocks in companies that they believe will go up in value over time. This is how investors generate profit from the stocks. Needless to say, the stock can also decrease in value over time too. It all depends on how well the company is doing. That’s why it’s important to do research and choose companies that you think will go up in value. You can then decide to sell the stock whenever you wish and hopefully make a profit!
If you decide to buy a bond, you are essentially loaning a company your money in the hope of personal profit. Companies reach out to investors for loans instead of going to a bank. The good thing about bonds is you will receive regular payments with added interest (you can decide the time periods in between each payment). You can also set a final payment (maturity date) when the loan will end. It’s somewhat a safer way of investing than stocks because you’re pretty much guaranteed an income and profit (by interest). Unless of course, the company goes bankrupt. However, in this case, you will usually be offered stocks in new companies for exchange. So there is still a possibility you will receive your money back. It’s a low-risk investment.
Investing in mutual funds is essentially a company taking money from investors and investing the money into different assets, such as stocks and bonds. Therefore, investing in mutual funds means you will have a much more diverse portfolio and various incomes. Investors usually do this so they have more chances of gaining financial income. The mutual funds have professional financial managers running them so investors can relax. Many investors choose mutual funds because it allows them to invest in more than they usually could manage.
Index funds have many similarities to mutual funds but many investors prefer them because they have lower expenses and fees. This is because they are less actively managed than some other funds, such as mutual funds. Essentially, if you invest in index funds you are investing in stocks or bonds. However, they are designed to track previous performances and mimic them in the hope it continues this way and you make financial gains. These are lower-risk investments so it’s unlikely that you will make huge financial gains.
Exchange-traded funds (ETFs)
EFTs are traded on exchange exactly like stocks. And like stocks, the price of them will increase or decrease throughout the day. It depends on how the market is doing and how many stocks are being sold/bought. These investments are more liquified and risky. They can include many different types of investments, such as stocks or bonds. Fundamentally, EFTs are a group of securities that can be traded on an exchange whenever the investor sees fit.
If you invest in Options then you are essentially signing a contract with the owner or holder. This contract will give you an investment at a predetermined price for a certain period of time (decided by the owner/holder). As an investor, you still have the right to buy or sell as you see fit though. Option investments are extremely low risk because technically you can withdraw from the contract at any point. So, you are more likely to make small financial gains and nothing big.