BE FINANCIAL ED.
The Capital Markets
Stocks and Bonds
To know how money works, we should understand how the financial markets work. Generally, when a company needs to raise money, they can either issue stock or bond certificates.
What are the first market and the secondary market?
The First Market
The Company sells stock and bonds through a process called Initial Public Offering (IPO). During IPO, this is the first time these certificates are being offered to the public. Stock and bond certificates are called securities.
The Secondary Market
After IPO, investors can buy,sell, and trade these certificates on the stock market. The New York Stock Exchange is the biggest among the world's stock markets.
INVESTMENT
Stock & Bonds
A stock is an instrument that signifies equity ownership in a corporation, and represents a proportionate claim on a company's assets and profits.
A bond is an instrument of indebtedness of the bond issuer to the holders.
The Market Index
An index is a statistical indicator used to measure and report changes in the market value of a group of stocks. For instance, the Dow, the S&P500, and Nasdaq
The rising and falling of the number on any given day provide you an idea of how the index is performing and what the market is doing in general. Keep in mind, however, that market indexes are unmanaged, and it is not possible to invest directly in an index.
Mutual Funds
A mutual fund is a pool of money from investors. Each fund has a specific mandate or purpose and a professional fund manager who invests the money based on the specific strategy and goal of the fund.
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How Mutual Funds Work
For instance, you have $100 to invest. This small amount of money may only allow you to buy 1 share of 1 company stock, and the risk and reward of 1 stock is high risk.
If you have $1,000 and put $100 in 10 different stocks, you are starting to spread your risk out. If you have 1,000 people same as you who also invest $1,000, then you have $1,000,000. This large sum would greatly expand your investment choices.
A mutual fund is a pool of money from investors. Each fund has a specific mandate or purpose and a professional fund manager who invests the money based on the specific strategy and goal of the fund.
Types of Mutual Funds
In general, mutual fund fall into 1 of the 4 major categories, Money Market Funds, Bond Funds, Stock Funds, and Balanced Funds.
Well, Stock funds are quite popular, offering a wide range of funds, which can be identified by 4 main categories. Growth Funds, Value Funds, Index Funds, and Sector Funds.
In reality, mutual funds consist of a mix of stocks, bonds, money market and other assets, offering a wide variety of choices to investors.