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Understanding Investment

To invest is to allocate money with the expectation of a positive benefit/return in the future. In other words, to invest means owning an asset or an item with the goal of generating income from the investment or the appreciation of your investment which is an increase in the value of the asset over a period of time.

Types Of Investment

  • Stocks

  • Bonds

  • Mutual Funds and ETFs

  • Bank Products

  • Options

  • Annuities

  • Retirement

  • Saving for Education

  • Alternative and Complex Products

  • Initial Coin Offerings and Cryptocurrencies

  • Commodity Futures

  • Security Futures

  • Insurance


When you invest in a stock, you become one of the owners of a corporation. Stocks represent ownership shares, also known as equity shares. Whether you make or lose money on a stock depends on the success or failure of the company, which type of stock you own, and what’s going on in the stock market overall and other factors. Stocks and stock mutual funds often can be an important component of a diversified investment portfolio. Learn more about different types of stocks and how to assess whether a given stock is right for you.


A bond is a loan an investor makes to a corporation, government, federal agency or other organization in exchange for interest payments over a specified term plus repayment of principal at the bond’s maturity date. There are a wide variety of bonds including Treasuries, agency bonds, corporate bonds, municipal bonds and more. Likewise there are many types of bond mutual funds. When you invest in bonds and bond mutual funds, you face the risk that your investment might lose money, especially if you bought an individual bond and want or need to sell it before it matures. And bond mutual fund prices can fluctuate, just as stock mutual funds do. Risk will also vary depending on the type of bond you own. Bonds and bond mutual funds often can be an important component of a diversified investment portfolio. Whether you are just starting out or a seasoned investor, we have an array of articles, tools and resources to help learn more about bond investing.

Mutual Funds and ETFs

Investment funds pool the money of many investors and invest according to a specific strategy. Funds come in various types, each with differing features. Generally, publicly offered funds — such as mutual funds, exchange-traded funds, closed-end funds and unit investment trusts — must be registered with the Securities and Exchange Commission (SEC) as investment companies. Private investment funds (often called hedge funds) are often exempt from registration. Funds can offer diversification and professional management — and they can feature a wide variety of investment strategies and styles. As with any security, investing in a fund involves risk, including the possibility that you may lose money. And how a fund performed in the past is not an indication of how it will perform in the future. Some funds, such as hedge funds, do not register their shares with the SEC. This means they are not subject to the same regulatory standards that apply to mutual funds and other funds registered with the SEC.

Bank Products

Banks and credit unions can provide a safe and convenient way to accumulate savings—and some banks offer services that can help you manage your money. Deposits at banks and most credit unions are federally insured up to a limit set by Congress. And transaction (or checking) accounts and deposit accounts offer liquidity, making it easy for you to get to your funds for any reason—from day-to-day expenses to a down payment or money for unexpected emergencies. In addition to being insured by the FDIC, checking accounts let you transfer money by check or electronic payment to a person or organization that you designate as payee. But remember, the interest you earn from bank products—including certificates of deposit (CDs)—tends to be lower than potential returns from other investments.


Options are contracts that give the purchaser the right, but not the obligation, to buy or sell a security, such as a stock or exchange-traded fund, at a fixed price within a specific period of time. Options can help investors manage risk. But buying and selling options also involves risk, and it is possible to lose money. It pays to learn about different types of options, trading strategies and the risks involved. Investor Insights: Options Spotlight To the uninitiated, the options market can seem to have its own language, with a number of unfamiliar terms. This article lays out some basic terms to help you become conversant in the language of options. Learn more about options assignments, an important concept that involves the seller's obligation to fulfill the terms of an option contract by either selling or buying the underlying security at the exercise price. This obligation is triggered when the buyer of an option contract exercises their right to buy or sell the underlying security. Binary Options Binary Options: These All-Or-Nothing Options Are All-Too-Often Fraudulent Trading binary options can be an extremely risky proposition. Unlike other types of options contracts, binary options are all-or-nothing propositions. Trading binary options is made even riskier by fraudulent schemes, many of which originate outside the United States.


An annuity is a contract between you and an insurance company in which the company promises to make periodic payments to you, starting immediately or at some future time. You buy an annuity either with a single payment or a series of payments called premiums. Some annuity contracts provide a way to save for retirement. Others can turn your savings into a stream of retirement income. Still others do both. If you use an annuity as a savings vehicle and the insurance company delays your pay-out to the future, you have a deferred annuity. If you use the annuity to create a source of retirement income and your payments start right away, you have an immediate annuity. The two most common types of annuities are fixed and variable. There is also a hybrid called an indexed annuity, also referred to as an equity-indexed annuity or a fixed-index annuity. Variable annuities are securities and under FINRA's jurisdiction. Annuities are often products investors consider when they plan for retirement—so it pays to understand them. They also are often marketed as tax-deferred savings products. Annuities come with a variety of fees and expenses, such as surrender charges, mortality and expense risk charges and administrative fees. Annuities also can have high commissions, reaching seven percent or more.


Saving for retirement, and managing income once you retire, are two important aspects of personal financial management. When it comes to saving, tax-advantaged options such as a 401(k) or IRA can be smart choices. In addition to potential tax benefits, there is an opportunity for your savings to compound over time. FINRA's Smart 401(k) resource provides valuable information about how 401(k) plans work, whether you're just getting started or already retired.

Once you retire, the way you manage your income can mean the difference between living comfortably in retirement and running short of money down the road. Whether you are in retirement or still saving for it, there are actions you can take now to manage retirement income.


Education funding begins with saving. While college and other educational costs continue to rise, the good news is that there are many smart, tax-advantaged ways to save for education. We'll help you navigate your options, and provide tips and tools along the way.


Estimate Your Education Savings Needs

Don't be daunted by the amount you may have to save. Small amounts of money, if invested early, can become sizable investments through smart planning and compounding. For example, if you save $200 a month at a 6 percent annual rate of return for your newborn child, you will have more than $76,000 for college when she turns 18.


Investment products abound that offer alternatives to conventional stock and bond investments. These products are sometimes referred to as structured products or non-conventional investments. They tend to be both more complex—and more risky—than traditional investments, and often tempt investors with special features and higher returns than offered by basic investments. Some examples of complex products include notes with principal protection and high-yield bonds that have lower credit ratings and higher risk of default, but offer more attractive rates of return. Complex products may use futures and options, as well as complicated trading strategies, to achieve investment objectives. Although these products may have attractive qualities, it is crucial to understand each investment’s distinct features, risks and rewards. FINRA’s investor alerts and information can help




Digital assets like cryptocurrencies and ICOs continue to evolve and spark interest from Main Street investors. With billions of dollars raised in ICO financings and over a thousand different cryptocurrencies currently available, these rapidly changing markets are tempting for investors. It is also difficult for most individual investors to make sense of these complex investment products and to determine the risk levels associated with them.


Commodity futures contracts are agreements to buy or sell a specific quantity of a commodity at a specified price on a particular date in the future. Commodities include metals, oil, grains and animal products, as well as financial instruments and currencies. With limited exceptions, trading in futures contracts must be executed on the floor of a commodity exchange. The Commodity Futures Trading Commission (CFTC) is the federal government agency that regulates the commodity futures, commodity options, and swaps trading markets. Anyone who trades futures with the public or gives advice about futures trading must be registered with the National Futures Association (NFA), the independent regulator for anyone who trades futures with the public. Before you invest in commodity futures, check to make sure the individual and firm are registered and whether they are the subject of any disciplinary actions. Use the NFA’s Background Affiliation Status Information Center (BASIC).

Security Futures—Know Your Risks, or Risk Your Future

Federal regulations permit trading in futures contracts on single stocks (also known as single stock futures or SSFs) and narrow-based security indices (see glossary below). This article describes what security futures are, how they differ from stock options, some of the risks they can pose, and how they are regulated.

Security futures involve a high degree of risk and are not suitable for all investors. As with any investment, if you don't understand it, you shouldn't buy it.

With security futures, you may lose a substantial amount of money in a very short period of time. The amount you may lose is potentially unlimited and can exceed the amount you originally deposit with your broker. This is because trading in security futures typically involves a high degree of leverage, with a relatively small amount of money controlling assets having a much greater value. Investors who are uncomfortable with this level of risk should not trade security futures.


Life insurance products are often a part of an overall financial plan. They come in various forms, including term life, whole life and universal life policies. There also are variations on these—variable life insurance and variable universal life insurance—which are considered securities and must be registered with the Securities and Exchange Commission (SEC). FINRA has jurisdiction over the investment professionals and firms that sell variable life and variable universal life products. Insurance products often are developed to meet specific objectives. For example, long-term care insurance is designed to help manage health care expenses as you age. As with other financial products, insurance products can be complex and come with fees, so it pays to do your homework before you buy. Here are some of the most common types of life insurance:

  • Term Life Insurance. Term life provides coverage for a specified and limited period, known as the term. Premiums for most term policies tend to go up as you age or at the end of each renewal period. After the term ends, so does the policy and its coverage if it's not renewed.

  • Whole Life Insurance. Whole life or ordinary life insurance is a type of permanent life insurance. It provides coverage for the life of the insured and can build cash value, which is a savings feature. Premium payments typically remain the same for the life of the insured.

  • Universal Life Insurance. Universal life provides coverage for the life of the insured and also offers flexible premium payments and insurance coverage. The cost of your insurance protection and in some cases other costs are deducted from the cash or policy account value.

  • Variable Life Insurance. Variable life is a type of security that offers fixed premiums and a minimum death benefit. Unlike whole life insurance, its cash value is invested in a portfolio of securities. As the policyholder, you can choose the mix of investments from those the policy offers. However, the policy's investment return is not guaranteed and the cash value will fluctuate.

  • Variable Universal Life Insurance. This type of security combines features of universal life insurance and variable life insurance. It offers flexibility in premium payments and insurance coverage, as well as an investment account.

Another type of insurance is long-term care insurance, which tends to cover what Medicare and most conventional health insurance policies don't: long-term custodial care expenses. It's a risk-management product to help cushion the financial blow of prolonged and expensive elder care or custodial care.

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