2006-6-22
I'm Steve Ember with the VOA Special English Economics Report.
Stocks, bonds, land -- people invest in different things and for different reasons. But all investors share the same goal. They want to get more money out of their investment than they put into it.
The money they invest today provides capital for future growth in the economy. But people can watch their own financial future take a wild ride as markets rise and fall. So investors have to decide how much risk they are willing to take and for how long.
One choice for people who want a low-risk investment is the money market. Usually individuals do this through money market mutual funds. Mutual funds are investment pools. They gather the money of many investors.
Money market mutual funds earn interest from short-term loans to government and businesses. But the return to investors is low because little risk is involved.
Notes and bonds are loans, too. They have terms from two to thirty years. The longer the term of a loan, the greater the risk that the investment will not be repaid. So notes and bonds usually pay higher interest rates than short-term bills or commercial paper.
Millions of people invest in bonds and other debt-based products. This is true especially as people get older and want to reduce the level of risk in their investments.
But over time, debt-based investments have traditionally provided lower returns than stocks. Stock is a share of ownership in a business.
Common stock gives investors a vote on company issues and leadership. It might also pay a small percentage of its value, a dividend, one or more times a year. Not all stocks pay dividends. Some are valued more for their growth. Technology stocks, for example, rarely pay dividends.
Preferred stock is different from common stock. Holders of preferred stock have no vote on company issues, but they also have less risk. They get paid a stated dividend before the company even considers paying dividends on common stock.
Investing in stocks of individual companies can be very risky. Bad news can quickly cut their value. Instead, many people invest in stock mutual funds so their money goes into many different stocks. Balanced funds mix stocks and bonds to spread risk -- and capital -- even more.
This VOA Special English Economics Report was written by Mario Ritter. You can read a transcript of this report and download the audio at WWW.testbig.com. I'm Steve Ember.