The essence of investing comes down to the fact that an asset is bought cheaper and sold more expensive. But the method of earning money depends on the asset chosen by the investor. We will tell you how to earn money on three popular assets: stocks, bonds and mutual funds.
Stocks are securities issued by companies. An investor buys a share and becomes the owner of a share of the business. You can earn money on a stock by receiving dividends from it or by reselling it when it rises in price.
Most often, stocks are bought to earn money on the growth of their value. As a rule, the securities of large companies always rise in price in the long term and quickly recover even after strong drawdowns.
Dividends are a share of the profit that a company distributes among its shareholders. Dividends are not always paid – companies themselves decide whether they will do this, how many times a year, what share of the profit they will direct to payments.
Bonds are debt securities. By purchasing a bond, an investor lends money to the state or a company with the condition that they will get it back with interest. This interest is called coupons. Investors earn on coupons or on the face value.
Mutual funds are mutual investment funds. They invest capital in various assets and issue their shares or stocks. One can say that one share or stock contains shares of all the securities that the fund has.