Basic Investment Terms: Bonds and Funds

Text was typset in LaTeX

During the preparation for future blog posts, I hesitated multiple times, because I was referring to terms, which are not clear for everybody.

This means, I have to squeeze in short explanations:

Bonds

A good description of bonds is the following figure of speech: Bonds are the tempered siblings of stocks: They are very common and the concept is easy to understand: If you buy bonds, you borrow money to the bond issuer (a company or a state) for a predefined time  and for predefined interest. This means, you’re able to make plans. The main risk is bankruptcy of the issuer (the company or state), so they might not be able to pay interest and principal.

Some selected government/state issued bonds are considered to be the safest investments which exist. You can park your money there, but you’ll also miss the chance of medium or high returns.

If you want more information, be referred to the wikipedia article.

Funds

A fund, or more precisely investment fund, is basically a way to join other investors, throw your money in a shared pot and investing together. In reality, someone manages the fund’s investments (and gets paid for this job). This enables you to spread the risk over lots of different investments, it allows you to diversify your investments. This diversification comes at a cost: The fund management wants to get paid.

If you look at the further details, you will find different branches of funds:

  • They can be actively managed (increased management cost) or not.
  • They might be exchange traded (you can sell your shares at the stock exchange) or not.
  • They can be open to everybody (you included) or not.

With this term in mind, you’re all set for the next few posts on investment topics.

And now, after reading this  blog post, I hope you will enjoy this legal disclaimer:

Keep in mind, that I am not a professional when it comes to finances and investments. It’s completely your decision, how to act on the information I am offering here.

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.