Once you have a better understanding of the investment choices available, you may come across specialized terms that explain how money can be invested: When you purchase an ETF, you are purchasing shares of the overall fund rather than actual shares of the individual underlying investments. Exchange-traded fund (ETF): Funds – sometimes referred to as baskets or portfolios of securities – that trade like stocks on an exchange.Mutual fund: An investment vehicle that allows you to invest your money in a professionally-managed portfolio of assets that, depending on the specific fund, could contain a variety of stocks, bonds, or other investments.Such ownership entitles you to any dividends that may be paid and you may experience gains or losses on your holdings over time. Stock: A type of investment that gives you partial ownership of a publicly-traded company.Depending on what price you paid, you may experience a gain or loss on the price of the bond itself (however, considering interest payments, you may experience a positive total return and there are return metrics that can estimate such total returns). Upon maturity, the bondholder will receive the face value of the bond-no matter what price he/she paid for it. Most bonds are denominated in $1,000 face-value increments, though they can sell above or below that price, particularly in the secondary market. Typically, the bond pays periodic interest (coupon payments) during its term, and it matures on a specific date. Bond: A debt instrument, a bond is essentially a loan that you are giving to a governmental entity or a company in exchange for a pre-set interest rate.The most common terms that are related to different types of investments: The following definitions for a few key terms can help increase your understanding of the investment process and enable you to make more informed decisions. However, fully understanding your investments can require a crash course in terminology. How and where you invest your hard-earned money is an important decision.
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