investment vehicles

Investing is simply the placement of money into a financial vehicle. This is often accomplished through the purchase of shares, which translates into investment ownership. The goal is for the values of the shares to increase so that a profit is made at the time of sale. Let's explore some of the more common investment vehicles on the market today.

Stocks. Companies use stocks as a way to raise capital. They  basically offer shares of ownership in exchange for money. The price for a share of stock will vary dramatically among companies. (can range from pennies to over $100 per share) Stocks are regarded as the riskiest of all investments. If the company does well (or there is speculation that it will do well) then the share price can elevate rapidly. However, the reverse is also a very real possibility.

Bonds. The government, as well as private industry, commonly use this method to raise capital. In essence they are borrowing money from people with the promise to pay back the principal balance at a set time. When this time is reached the bond is said to have matured. In addition the borrower is promised a certain amount of interest to be paid in addition to the principal. Bonds are generally a conservative investment choice.

Mutual Funds. This vehicle bundles together a number of different stocks into one product. By purchasing one share of a mutual fund, and individual is actually investing in several different companies. Since there are multiple companies involved the risk is somewhat diffused. For example it is possible for the share price of a mutual fund to increase even if one of the stocks in the fund is doing poorly, as long as the other stocks are performing well. However, because the funds are composed of stocks there is definitely a good amount of risk that is involved. Bond funds are also available, and the same principles apply.

CDs. Also known as certificates of deposit. These investments differ slightly in that they are debt instruments offered through banks. Individuals place certain amounts of money into a CD for a predetermined amount of time. (can range from several months to several years) In exchange, the bank agrees to pay a predetermined amount of interest. CDs are generally viewed as fairly conservative investments.

As you can see there are a number of investment vehicles from which to choose. Which one is right for you will vary depending on factors such as your goals, and your preference for conservative or aggressive investments. Before any decisions are made it is wise to have a clear understanding of what options are available.