Stocks represent ownership in a company.
When you buy shares, you’re purchasing a piece of that business. If the company thrives, so does your investment.
Bonds are different. They are loans made to corporations or governments. When you purchase a bond, you’re essentially lending money with the promise of repayment plus interest over time. Bonds tend to be more stable than stocks but usually offer lower returns.
Mutual funds pool money from multiple investors to buy various securities like stocks and bonds. This diversification can reduce risk while providing access to professional management.
Each type of investment has its unique characteristics, risks, and potential rewards. Understanding these differences is crucial for making informed decisions about how to grow your wealth effectively.