Written by Michael Parker
Investing sounds complicated, but the basics are pretty straightforward.
When you buy a stock, you own a tiny piece of a company. If Apple stock costs $180 and you buy one share, you own a microscopic slice of Apple. If the company does well, your stock value goes up. If it tanks, so does your investment.
The problem with individual stocks: It's risky. If you put everything into one company and it fails (hello, Blockbuster), you lose big. Most beginners shouldn't pick individual stocks.
These are baskets of stocks bundled together. Instead of buying one company, you buy a little piece of hundreds of companies at once. They trade like stocks throughout the day.
These are like ETFs but track a specific market index (like the S&P 500, which includes the 500 biggest U.S. companies). They're the "set it and forget it" option. When you buy an S&P 500 index fund, you're betting on the entire U.S. economy, not individual companies.
Start with something like 80% stock index funds, 20% bond index funds when you're young. As you get closer to retirement, shift toward more bonds for stability.
Ready to see how your investments could grow? Use our Compound Interest Calculator!