How to Understand Stocks & Bonds
Stocks and bonds are the Swiss army knives of many investment products. They're found in mutual funds, annuities, some life insurance policies, college savings funds, and elsewhere. Understanding stocks and bonds is easy if you follow a few simple steps.
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Instructions
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Research companies you enjoy. Understanding the stock market is easier if you start by tracking your favorite corporations. Look for companies that make products and services you admire and create a list of these firms.
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Follow Your Stocks Follow stocks on internet sites. Use the list you created to look up which companies are "public". "Public" means they're traded on a stock exchange. You're looking for a "ticker symbol" for each company. This symbol identifies the company stock in the investment world. There are many websites to research ticker symbols and to track stocks. Yahoo! Finance is a popular spot. You'll key in the ticker symbol of each company, followed by an arbitrary number of shares (100 is a popular number).
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Review the price movement of your stocks at least weekly. Stocks will fluctuate in price because of a number of variables, including overall market conditions (the overall market will value stocks higher or lower on any given day), product announcements, and political wrangling. Many websites such as Yahoo! Finance, BigCharts,and Clearstation feature charts that show the current stock price, historical prices, and data on stock trends. To view the chart, you'll only need the ticker symbol for each stock. Nothing helps you understand the stock market like tracking the rhythm of a few companies to get used to the price movement.
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Learn bond investing basics. Once you're comfortable with stocks, begin your research on buying bonds. Begin with websites that explain how bonds work. Focus on phrases like "maturity date", "coupon", and "credit rating". Getrichslowly.org, cnnmoney.com, and the Yahoo! Finance education center all offer many pages on basic bond investing to help you get comfortable with these terms and others.
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Track Bond Indexes Track bond indexes. The bad news: When you're first starting out with investing in bonds, it's far more complicated than stocks. Individual bond prices aren't as transparent and easy to find as stocks. The good news: Bonds move more uniformly based on the overall market than stocks. Bond indexes are a great way to begin tracking the ebb and flow of bond market reaction to news data. Popular indexes are found in many places, but iShares is the largest provider in the world of bond index investments.
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Invest small amounts of money in a few stocks and bond indexes. "Skin in the game" will give you a feel for your emotional reaction to price fluctuations. Find a reputable discount broker and purchase a few shares of stock, mutual funds, or an index. This can be accomplished online or offline through a myriad of brokerage options.
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Tips & Warnings
While you're tracking stocks or bonds, notice how your shares moved relative to the overall market that day. If your investment options lose value while the market experienced gains, attempt to figure out why. Trying to answer that question will help you understand how investments move under differing market conditions.
Watch your bond portfolio's reaction to Federal Reserve announcements when analyzing your investments. The overall bond market reacts more often and reliably to this data than most others.
If you don't want to invest in individual stocks, a mutual fund may be a better choice. Mutual funds are collections of stocks or bonds. This gives an investor market exposure without the risk of a single company investment. Morningstar.com is a good resource for mutual fund advice.
Brokerage charges and features vary widely. Compare many different brokers before deciding to invest.
Stock and bond prices fluctuate wildly in the market. Before you invest for the first time, remember that there is a good chance you could lose money. If you can't stomach losses, you may want to find more conservative investment options.
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