How much do you know about investing? DO you know anything? Have you ever even heard the words stocks, bonds, and mutual funds? If not, that’s okay. You can learn the basics very easily.

Before you can invest in the stock market, you should know what you’re doing. A company cannot be traded on an stock exchange until it has gone public. When a company is public, it can issue shares of stock which can be bought and sold. Your goal is to purchase stock at one price and sell it for a higher price to make a profit.

When you buy stock, you are buying part of the company. As a shareholder, you own part of the company. You are able to vote in the company, but usually just when voting for who will be on the board of director.

A stock is considered an equity security because you own part of the company. A bond is considered a debt security because you lend the company money, you don’t own any of it. You can buy bonds from the government, state, bank, or a corporation. If you buy a bond for $1,000 that matures in 10 years with an effective interest rate of 5% paid annually, every year you will receive $50 until the 10 years are up at which time they will pay you back the $1,000.

Bonds can either be held to maturity or bought and sold. Government bonds have little to no risk whereas corporate bonds are riskier. They are rated to show how risky they are.

Bonds are rated by letters. For example, a AAA is the highest rating which means it has the lowest risk by those usually have the lowest return as well. They are rated also as BBB, CCC, etc. The lower they go, the riskier they are.

A mutual fund is a little bit of both. It is a mix of stocks and/or bonds. Mutual funds work by pooling your money together with other investors money and investing in a lot of different investments.

Mutual funds are great for new investors or for those who aren’t interested in buying their own stocks but want a diversified portfolio. No-load funds are a popular choice because they charge no fees.