Maybe you’re new to investing. If that’s the case, welcome aboard! Or, perhaps you’re still mulling over whether to begin investing—or maybe you’ve started, but aren’t yet 100% confident in your knowledge about the world of investing.
No matter where you fall on that spectrum, you may find it helpful to read this Investing 101 primer and also take the investment test to gauge your knowledge.
At a high level, you cross over from savings into investing when you go from a mindset of putting away some money, perhaps earning a bit of interest (savings) to that of maximizing your money and causing it to multiply (investing).
Overview of Stocks and the Stock Market
A common way to invest is to buy stocks in companies. When you have a share of a stock, you actually own a small piece of that company. To buy and sell these stocks, you go to what’s called the stock market—although, as Nasdaq points out, this isn’t an accurate term because there are in fact multiple stock markets.
There are more than a dozen of them, with two of the most well known being the Nasdaq and the New York Stock Exchange (NYSE).
When stocks, in general, perform well, the stock market is said to go up; when stocks, overall, perform poorly, it’s said to go down. To glean intelligence about the overall performance of stocks, people rely upon indexes, such as the Nasdaq Composite, the Dow Jones Industrial Average, and the S&P 500.
If you invest in a couple of companies, you’d likely focus on simply monitoring how they perform. If, though, you have a variety of stocks, you’d probably rely upon indexes to understand how the stock markets are performing, overall.
Overview of Bonds
When you purchase bonds, you are actually making a loan to a company or government for a specified period of time. Broad categories of bonds include treasury bonds (issued by the U.S. government); corporate bonds; municipal bonds (issued by state or local governments, or agencies); and mortgage or asset-backed bonds.
As just one example, you might invest $1,000 in a General Electric corporate bond. The term is 20 years; the interest rate paid to you is 4%. So, you’d get $40 annually for 20 years, and then get your original investment back.
Overview of Mutual Funds and Exchange Traded Funds
There are more than 20,000 mutual funds and exchange traded funds (ETFs), and you can consider them as suitcases that are filled with a variety of investments, such as stocks and bonds. So, you instantly can benefit from diversification.
When you, for example, buy a particular company’s stock, if that company goes bankrupt, you’ve lost your investment. With mutual funds that contain that stock, though, you may have lost something, but not your entire investment.
Investing Demystified at SoFi
Our goal is to clarify what investing means and the multiple ways that people can potentially make money through their investments. There are never guarantees with investments, but we can help you to choose the right asset allocation mix for your unique situation, with advisors available to provide complimentary, personalized advice.
And, what’s universally true is that, to become an investor, you simply need to start investing; and, the sooner you begin, the more time you have to build your portfolio. If that interests you, you can check out SoFi Invest. With SoFi Invest® you can invest your way, all in one place. Start trading stocks and ETFs, or start automated investing.
External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.