Question

How stocks, bonds, and mutual funds work:?

Answer 1

1. Bonds are investment instruments that are basically loans to a company, a municipality, or the federal government with the expectation that the loan will be paid back at a set date in the future. Like all loans, bonds come with an interest component, which can involve periodic payments over the life of the bond or a single payment at maturity.

2. Mutual Funds are a way for a group of investors to pool their money so they can invest in a wider variety of stocks and bonds. The group of investors forms a “mutual” investment group and hires a professional fund manager. This manager makes decisions about how to invest the money based on the goals of the group. In a mutual fund, the value of your shares goes up and down as the value of the stocks and bonds in the fund rise and fall.

3. Stocks: Selling shares of stock is a common method corporations use to raise capital for things such as expansion and improvements, without borrowing large amounts of money. When you own stock, you actually own part of the company, and the value of your shares goes up and down as the company's perceived market value fluctuates. Stocks are basically certificates of equity and compared to most other types of investments, are considered riskier, but tend to have the greatest potential for long-term gains.