Getting Started: Savings and Investment Vehichles

Long-Term Investing Vehicles

Bonds: Bonds come in various forms that you will learn about in Step 5. They're known as "fixed-income" securities because the amount of income the bond generates each year is "fixed," or set, when the bond is sold. From an investor's point of view, bonds are very similar to CDs, except that they are issued by the government or by corporations instead of banks.

Stock: Stocks are a way for individuals to own parts of businesses. A share of stock represents a proportional share of ownership in a company. As the value of the company changes, the value of the share in that company rises and falls. Stocks are discussed in detail in Step 3 of Investing Basics.

Mutual funds: Mutual funds are a way for investors to pool their money to buy stocks, bonds, or anything else the fund manager decides is worthwhile. Instead of managing your money yourself, you turn over the responsibility of managing that money to a "professional." Unfortunately, 9 of 10 "professionals" tend to underperform the market indexes, a fact that we'll look at in Step 4.