For someone new to investing, the sheer number of options will leave one feeling overwhelmed. However, most portfolios begin with three key building blocks – stocks, bonds, and ETFs. In order to make smart decisions with your money, it is important to understand how each building block works.
Stocks represent a person’s ownership in a company. When you buy a stock, you buy a small portion of that company. It is known as a share. If the company performs well, the value of your shares increases, which could also allow you to earn dividends. Dividends are the payments given to shareholders. Stocks offer high returns, but are very risky and volatile.
Bonds, on the other hand, are essentially loans you give to companies, corporations, or the government. In return, these entities agree to pay you interest over time and return the principal when the term ends. Bonds are highly stable and provide regular income. This makes bonds a good option for conservative investment or when you are near retirement.
Exchange-Traded Funds, or ETFs, are investment funds traded like stocks. However, unlike stocks, ETFs hold a basket of assets, like several bonds or stocks. ETFs offer instant diversification and come with lower risks than buying individual stocks. It also has generally lower fees than mutual funds. ETFs are ideal for beginners who are looking for a simple way to invest their money and spread out risks.
Each of these options serves a different purpose in your portfolio. A balanced mix of stocks, bonds, and ETFs—tailored to your goals and risk tolerance—can help you grow wealth steadily while managing risk over time.
Stocks represent a person’s ownership in a company. When you buy a stock, you buy a small portion of that company. It is known as a share. If the company performs well, the value of your shares increases, which could also allow you to earn dividends. Dividends are the payments given to shareholders. Stocks offer high returns, but are very risky and volatile.
Bonds, on the other hand, are essentially loans you give to companies, corporations, or the government. In return, these entities agree to pay you interest over time and return the principal when the term ends. Bonds are highly stable and provide regular income. This makes bonds a good option for conservative investment or when you are near retirement.
Exchange-Traded Funds, or ETFs, are investment funds traded like stocks. However, unlike stocks, ETFs hold a basket of assets, like several bonds or stocks. ETFs offer instant diversification and come with lower risks than buying individual stocks. It also has generally lower fees than mutual funds. ETFs are ideal for beginners who are looking for a simple way to invest their money and spread out risks.
Each of these options serves a different purpose in your portfolio. A balanced mix of stocks, bonds, and ETFs—tailored to your goals and risk tolerance—can help you grow wealth steadily while managing risk over time.