Investments can be categorized in many different ways. A common categorization is to divide them into public and private investments, or by the type of investment (equity, debt, etc.).
Public investments are those that are traded on a market. Private investments are those that aren’t traded on a market . Examples of private investments are stock market investments and bank deposits. Examples of public investments are government bonds and the construction of roads.
There are various types of investments: stocks, bonds, mutual funds, index funds, exchange-traded funds
The Vanguard 500 Index Fund (VFINX) is an example of a low cost passive index fund. This fund is designed to track the return of the S&P 500 index, and has an expense ratio of .18%. The index funds are typically less volatile than actively managed funds and often have lower turnover rates.
The American Funds AMCAP Fund is an example of a high cost active mutual fund. This fund has an expense ratio of .95% and is focused on investing in stocks. The fund managers are actively choosing stocks to invest in with the hope that they will outperform the market.
Stocks are shares in a company that gives you a share of the company’s profits and voting rights. You can buy stocks in individual companies, or buy a stock mutual fund that invests in many companies. When you invest in stocks, you’re hoping the company will grow, and the stock price will increase.
You can buy stocks on an exchange, like the New York Stock Exchange. This is called a “publicly traded company”. You may think that means you can buy any company’s stock, but there are some companies that are not listed on public exchanges.