Investing Basics: Stocks, Bonds, Funds & Retirement Plans

Saving

Putting money somewhere safe (bank account)

Investing

Use money to buy things that can grow in value (stocks, bonds, funds)

Compound Interest

You earn interest on money AND on the interest you have ALREADY EARNED

Investors

Long-term, buy and hold for years, care about slow, steady growth

Traders

Short term, buy and sell often, trying to make quick profits

Reasons why Americans don't invest

Scared of losing money, lazy, don't get investing, procrastination

Stock

Like a tiny bit of ownership in a company

How the stock market works

Buyers and sellers trade stocks through stock exchange

Bull market

Prices go up, people confident, everyone acting all rich

Bear market

Prices go down, people are scared

Bond

You lend money to a company or government, they promise to pay you back later with interest

Corporate bonds

From companies, more risk, higher interest rates

Government bond

From the government, safer, have lower interest rates

Successful investor

Invest early, stay consistent, don't panic sell, diversify, think long term

Funds

Like a big basket of investments

Index funds

Follows what the rest of the markets does

ETF (exchange-traded funds)

Index funds but in a cuter 'stock-like' format

Mutual funds

Professional picks the investments

Target date funds

Retirement but on autopilot, adjusts for you

Active investing

Someone is constantly choosing 'special' stocks

Passive investing

Buy something like an index fund and just let it grow

Ways mutual funds make money

Dividends, interest, capital gains

Expense ratio

Tiny yearly fee for managing the fund

Sales load

Mutual funds charge when you buy or sell

Management fees

Paying the managers for choosing investments

401(k)

Offered by your job, comes out of paycheck automatically

Traditional IRA

Pre-tax money, pay taxes later

Roth IRA

Post-tax money, grows tax-free

Pension

Employer gives you money in retirement, pretty rare now