stocks
There are private companies and public companies. The difference between the two is that private companies have private owners, whereas public companies are openly traded on the stock market and have many "owners". Every time you buy stock in a company, you are technically becoming a part owner of the business. Stocks are very volatile compared to other types of investments, such as bonds and mutual funds, in that the price can fluctuate up or down drastically at any given moment. People buy stocks in hopes that they can sell it for a higher price than they bought it for; these gains are called capital gains.
Example: You bought 200 GoPro (GPRO) shares on 2/7/2016 for $10 a share, total investment of $2000. You then sell your 200 GPRO shares three weeks later on 2/21/2016 for $12.50 a share, netting you a total of $2500.
Net proceed from sale of shares - initial investment = profit/loss
$2500 - $2000 = $500 profit
dividend paying stocks
Dividend paying stocks are essentially the same as regular stocks, however with dividend paying stocks, as an owner of them you will get paid a quarterly dividend. What's a dividend? Dividends are sums of money paid out to stock shareholders every quarter from the company's profits. So, if you own one of these stocks during the dividend dates, you will be paid the dividend per share you own, right into your account. These are good investments as they are typically less volatile than regular stocks and they provide steady income. These stocks give you the potential to earn money through both dividends and capital gains.
Example: Say you owned Walmart (WMT) stock during the dividend dates for the last quarter of 2015. WMT's dividend was $.49 per share owned. If you owned 100 shares of WMT, you would have been paid out $49 into your account, just for that quarter. If you owned it all year and the dividend amounts stayed the same, that's an extra $196 in income for you. Let's also say you bought the 100 WMT shares on the first day of 2014 for $75 a share. One year later, you sell the shares for $85 a share. Your total investment gain/loss would be as follows:
Dividends + net proceeds from sale of shares - initial investment = profit/loss
$196 + $8500 - $7500 = $1196 profit
bonds
Bonds are pretty much certificates from the government or a company saying that, if you give them $1000 today, they will give you $50 per year for ten years, and then at the end of the tenth year they will give you your $1000 back. The numbers in that example were completely arbitrary, but that's the jist of bonds. In the old days, you would actually receive a certificate for your bond, but today you just get an email or something... not sure, never bought one before. Bonds are super boring, but they are safe investments.
mutual funds
Mutual funds are a collection or group of stocks that are bundled together to create one asset. They offer more diversification than investing in individual stocks because they often have many different types of stocks in them (technology stocks, utility stocks, financial stocks, etc.). Mutual funds are put together by brokerages like Vanguard, Schwab, Fidelity, and loads of others. Investing in them is a good choice because they typically have people watching over them and making changes in them as necessary. Unfortunately, because they are being watched over, you will have to pay bigger fees than most other investments just to own it.
ETFs
ETFs are like mutual funds in that they are a collection of stocks. They are different in that they are not managed or watched over by professionals and they have much lower fees. I prefer ETFs to mutual funds any day because they trade just like stocks do.
futures, options, commodities, real estate.
These are some of the more complex investment types, so explaining these is insanely difficult. If you want to know more about any of the above send me a message and we can have a talk about it!
How are investments traded?
Every time you buy or sell a stock, ETF, option, future, etc., you are not just buying some random asset out of thin air at a random price. When you click BUY or SELL, you are actually buying or selling shares to another person at an agreed upon price. Stock prices change every day as a result of market forces. By this we mean that share prices change because of supply and demand. If more people want to buy a stock (demand) than sell it (supply), then the price moves up. Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.
Understanding supply and demand is easy. What is difficult to comprehend is what makes people like a particular stock and dislike another stock, which is called sentiment. This comes down to figuring out what news is positive for a company and what news is negative. The price tends to hover around what investors think is the overall fair market value for the entire company. (investopedia.com)
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