Understanding Types of Investments

Stocks

Also known as: Equities

What Are They?

Stocks represent ownership in a company. When you buy a share of stock, you’re buying a small piece of that company. As a shareholder, you benefit when the company performs well, typically through price appreciation or dividends.

Key Features:

• Higher growth potential, but also higher risk
• Can provide dividends (a portion of the company’s profits)
• Value can go up or down based on company performance and market conditions

Best For: 

• Long-term growth
• Investors with a higher risk tolerance

Bonds

Also known as: Fixed Income Investments

What Are They?

A bond is essentially a loan you give to a company or government. In return, they promise to pay you back at a later date with regular interest payments along the way.

Key Features:

• Generally considered lower risk than stocks
• Provide steady income through interest (called “coupon payments”)
• Bond prices can fluctuate but are typically more stable than stocks

Best For:

• Income generation
• Reducing portfolio risk through diversification

ETFs 

Also know as: Exchange-Traded Funds

What Are They?

ETFs are similar to mutual funds but trade like individual stocks on an exchange. They often track a specific index, such as the S&P 500.

Key Features:

• Offer low-cost diversification
• Trade throughout the day like stocks
• Many are passively managed (index-based)
• Often have lower fees than mutual funds

Best For:

• Cost-conscious investors
• Those who want the flexibility to trade during the day