Stocks

A stock represents ownership in a company. When you buy a stock, you are buying a piece of that company, making you a shareholder. If the company does well, the price of the stock may increase, and you could make a profit if you decide to sell your shares. Conversely, if the company does not do well, the price of the stock may decrease, which could lead to losses.

Key features of stocks:

1. Ownership: Buying shares in a company means you own a part of the company. As a shareholder, you may be entitled to a portion of the company’s profits in the form of dividends, and you may get voting rights at the company’s annual general meeting.

2. Risk and Reward: Stocks are generally considered a riskier investment compared to bonds and cash. This is because the performance of stocks is directly tied to the performance of the company and the broader economy. However, this also means that there is a higher potential for returns.

3. No Guarantee: There is no guarantee you’ll make money from stocks. The company you invest in could go bankrupt, or the price of the stock could decline for a variety of reasons.

ETFs

An ETF is a type of security that tracks an index, sector, commodity, or a variety of other asset classes. Unlike mutual funds, which are only priced at the end of each trading day, ETFs are traded on an exchange just like stocks, and their price can fluctuate throughout the day.

Key features of ETFs:

1. Diversification: An ETF holds a variety of different assets, like stocks, bonds, or commodities. This means that when you buy an ETF, you’re spreading your investment across multiple assets, which can help to reduce risk.

2. Liquidity: Because ETFs are traded on an exchange just like stocks, they offer more liquidity than other types of funds. This means you can buy and sell ETFs throughout the trading day at fluctuating prices.

3. Lower Costs: ETFs typically have lower expense ratios than mutual funds, which can make them a more cost-effective choice for many investors.

4. Transparency: Most ETFs are structured so that their holdings are revealed on a daily basis, while mutual funds disclose their holdings monthly or quarterly.