Important Note: This is not personal advice. If you are not sure whether an investment is right for you please seek advice. If you choose to invest, the value of the investment will rise and fall, so you could get back less than you put in.

When you have decided to take a deep dive into the investing world, you might want to know what you can invest in. There are many items you can invest your money but there are differences in how they work. It is best to understand the differences and the benefits they bring before investing your own money into them.

Individual Company Stocks

The most traditional way to invest is into a company’s stock (also known as equity) that represents the ownership of a fraction of a corporation. Companies sell stocks to raise funds to operate their businesses. Ordinary shareholders may be entitled to a portion of the company’s profit through dividend payments. The more shares you own, the larger the portion of the profits you get. Many stocks may not pay dividends but instead reinvest the profits back into growing the company. The earnings gained are still reflected in the value of a stock.

Video: What Are Stocks and How Do They Work? by Concerning Reality

Index Funds

An Index Fund consists of a portfolio to match or track components of a market index such as the S&P 500 (top 500 companies in the US). When you invest in an index fund, the money you put in is then invested in all companies that make up the particular index fund. Investing in an index fund gives you a more diverse portfolio than if you were buying individual stocks. Index funds are passively managed, which use computers to match the market's performance. As index funds are passively managed rather than managed by daily human management, the management fee is much lower.

Videos: What Are Index Funds? by TD Ameritrade

ETF (Exchange-Traded Fund)

ETF is a type of security that tracks an index, sector, commodity, or other assets which can be sold on the stock market. ETFs can be purchased or sold at any time of day. Other funds such as Index Funds can only be traded once a day normally at the end of the day. Depending on the ETF, some may pay you back on dividend payments.

Video: Investing Basics: ETFs by TD Ameritrade

Bonds

Bonds are investments where an investor lends money to a company or government for a set period. In exchange for money, regular interest payments are paid to the investor. Once the bond reaches maturity, the investment is given back to the investor. Bonds are generally safe to invest in but they yield lower returns. The one risk bonds have is the bond issue, they may default on their payments. Generally, bonds with higher returns mean greater investment risk.

Video: Investing Basics: Bonds by TD Ameritrade

Summary

There are many avenues to invest your money into from individual stocks, funds, and bonds. Many investors will use a combination to build their diverse portfolio to reduce the amount of risk in their investment.