🎨 4 Investing Terms Everyone Should Know

Stocks: When you buy a stock, you’re purchasing a small piece of ownership in a company (e.g., Apple stock). Ideally, as the company grows and becomes more profitable, the stock’s value increases, allowing you to sell and lock in a profit. However, investing in stocks carries risks such as market downturns or increased competition, which could cause the stock’s value to fall. Stocks can offer higher growth potential than other investments but also come with greater volatility.

Bonds: When you buy a bond, you’re essentially lending money to a company or the government in exchange for regular interest payments and the return of your initial investment at maturity. For example, purchasing a U.S. Treasury bond means lending money to the federal government, which pays you interest over time. Bonds are generally considered less risky than stocks because they offer more predictable returns, but also typically provide lower potential for sizeable profits.

Diversification: Diversification is an investing strategy that involves spreading your money across different assets to reduce risk. Instead of putting all your money into a single stock like Tesla — one way to diversify is by investing in multiple industries such as Technology, Financials, and Healthcare. By not putting all your eggs into one basket, you minimize the impact of a single investment’s poor performance on your overall portfolio.

ETF: ETFs (Exchange-Traded Funds) are diversified funds that trade on stock exchanges — tracking indexes, sectors, or commodities. Basically, an ETF bundles a variety of investments into a single fund, allowing you to invest in a diversified portfolio with a single purchase. A popular example is an ETF tracking the S&P 500, which gives investors exposure to the 500 largest U.S. companies (including companies like Google, Microsoft, Costco, and Visa).