This blog is to provide a very basic explanation of the most common investment vehicles.
Stocks: A stock is an ownership in a company. In the old days, when an individual bought a stock of a company, they were actually given a piece of paper stating they had one or more stocks of a company. The more stocks of a company an individual owns, the more of the company they own.
Bonds: Bonds are temporary loans to businesses and governments. When you buy a bond, you are giving the selling entity a certain amount of money, which will then build interest over the course of the life of the bond. At the end of the bond life, the entity pays you back the principal plus the interest.
Mutual Funds: Mutual Funds are baskets of many stocks, bonds, REIT’s, and other investment vehicles. When you buy a share of a mutual fund, you are buying fractions of multiple investment vehicles from multiple different entities. The funds are managed by large financial organizations.
Exchange Traded Funds: ETF’s are identical to Mutual Funds, except for the facts that shares of an ETF can be traded throughout the day like a stock (whereas shares of Mutual Funds can only be traded once at the end of the trading day) and that they are more tax efficient.
Real Estate Investment Trusts: REIT’s are either Mutual Funds or ETF’s made entirely of real estate investments. These shares of companies who lease commercial real estate, rent out homes, and those that buy and sell property.