Investment Types Defined

Below is some information on a few of the basic types of investments, you can find more information in our Learning Center with the articles, newsletters and e-seminars.

What are stocks?

A stock represents a share of ownership in a business. When you hold one or more shares of stock in a company, you actually own a piece of that company. Your percentage of ownership will depend on how many shares you hold in relation to the total number of shares issued by the company.

Investors who purchase stock  are known as the company's stockholders or shareholders. The price of shares reflects the public's level of interest in owning the shares. If a lot of investors want to buy shares, they bid against one another, driving up the market price of the stock. If interest is low, competing bids are few and far between, and the price of shares is likely to fall.

You may hold the stock  in the form of a stock certificate, which identifies you as the owner of the stock and the number of shares you own. Alternatively, shares may be held in an account with a brokerage firm.

For more information regarding stocks, please read the following article on Stocks, An Introduction.
 

What is a Bond?

Bonds, sometimes called debt instruments or fixed-income securities, are essentially loans. Corporations often raise money by issuing bonds in addition to selling stock. Governments often use bonds to pay for their ongoing operations or specific projects, such as highways or new construction.

The borrower (the bond issuer) typically promises to pay the lender (the bondholder), regular interest payments until a certain date. At that point, the bond is said to have matured. When it reaches its maturity date, the full amount of the loan (the principal or face value) must be repaid to the bondholder. Each bond pays a stated interest rate called the coupon, a term that dates back to the days when a bondholder had to clip a coupon attached to the bond and mail it in to receive the interest payment. Most bonds pay interest on a fixed schedule, usually quarterly or semiannually, although some pay all interest at maturity along with the principal. In some cases, the issuer can decide to pay back the loan early by calling the bond and repaying the principal before maturity. The specific terms of a bond are set forth in a bond agreement known as an indenture

For more information regarding bonds, please read the following article on Bonds: An Introduction.
 

What is a Mutual Fund?

A mutual fund is an investment company that pools money from many people and invests it in stocks, bonds, or other securities. Each investor owns shares; each share represents a tiny portion of each individual security held by the fund. An investment professional handles the purchase and sale of individual securities in the fund based either on an index or on his or her professional expertise. Investors may buy shares (or portions) directly from the fund or through brokers, banks, or financial planning or insurance professionals.

For more information regarding mutual funds, please read the following article on Mutual Funds.

What is an Annuity?

An annuity is a contract between you (the purchaser or owner) and the issuer (usually an insurance company). In its simplest form, you pay money to the annuity issuer, the issuer invests the money for you, and then the issuer pays out the principal and earnings back to you or to a named beneficiary.

For more information regarding annuities, please read the following article on Annuities.