Types of Investments
Mutual Funds
Group of stocks managed by investment firm using a pool of investor’s capital. Share prices only change after market close and do not require purchasing whole shares, marginal shares/dollar amounts can be purchased. Will have an expense ratio, which are fees taken by the investment firm for managing and balancing the funds.
ETF’s
Like Mutual Funds, a group of stocks aimed at mirroring a certain sector or common trait of companies (tech, pharma, oil, EV, etc.) ETFs do trade throughout the day and are only available as shares of stocks (must purchase full share). They will also have an expense ratio.
Individual Stocks
Ownership in a public company, some stock shares will grant voting rights. Individual shares are not as diverse as mutual funds or ETFs and may be considered putting your eggs in the same basket. While it provides greater potential for profits if the individual company’s stock increases, it also provides greater risk.
Bonds
Loans issued by companies or governments to raise capital. Bonds typically have a set return over a given number of years or months. They are considered “safer” than stocks because of the guaranteed return and the risk of the company defaulting or going bankrupt, which would also affect stock prices to a greater extent. Bonds are classified based on the risk of the company, government-backed bonds (I and EE Series) are known as the most secure since they have the “full faith and backing of the United States government”.
Cryptocurrency
The newer investment type consists of “coins” or currency that is mined by solving algorithms with computers. The corresponding coins can be traded and used to purchase goods and services through the blockchain, which is a public ledger of who owns every coin. They can be purchased in fractional coins through crypto exchanges like Coinbase and Binance. The value of a coin is dependent on its supply and demand of it, similar in some ways to how stocks are valued. Cryptocurrency tends to fluctuate more than any other type of security. Since it is new, it is important to do your own research and see if cryptocurrencies fit your investment risk tolerance.