Investing Basics: What Is Investing?
Investing means putting money into something with the expectation that it will grow over time. Instead of letting cash sit idle, you put it to work.
Stocks
When you buy a stock, you own a small piece of a company. If the company grows, the stock value increases. Stocks offer high potential returns but come with higher risk. Prices go up and down daily.
Bonds
When you buy a bond, you lend money to a company or government. They pay you regular interest and return the principal at maturity. Bonds offer lower but more stable returns.
The Stock-Bond Mix
Your allocation depends on your age and risk tolerance.
- At age 25: mostly stocks (90%) for growth
- At age 45: a balanced mix (70% stocks, 30% bonds)
- At age 65: mostly bonds (60%) for stability
Index Funds
Instead of picking individual stocks, buy an index fund. It owns hundreds of companies at once. Low fees, instant diversification, and better long-term performance than most actively managed funds.
Key Takeaways
- Stocks offer growth but with higher risk.
- Bonds offer stability but lower returns.
- Your mix should change as you get older.
- Index funds provide diversification and low costs.
- Start early and invest consistently.