Company Ownership

• When you buy shares of stock, you become a part owner of the company in which you invest. That ownership gives you the right to vote at the annual shareholder meeting, and to vote to vote for any special initiatives that require the approval of shareholders. Being a part owner of the company also gives you the right to collect any dividends the company declares, with the amount of your dividend determined by the number of shares you own.
  
  

Lending Money

• When you buy a bond, you are in essence lending money to the company, government agency or entity that issued that bond. In exchange for that loan, you receive a fixed rate of interest for the life of the loan, as well as the promise that you will get your money back when the bond matures. There are risks associated with bonds, just as there are with stocks. The most serious risk is the risk that the company or entity issuing the bond will go out of business and not pay back the loan.
  
  

Mutual Funds

• Investors can use mutual funds to purchase stocks and bonds, instead of purchasing those stocks and bonds directly. With a mutual fund, your money is pooled with money from other investors, and that money is used to purchase a portfolio that includes many different stocks and bonds instead of just a handful. This provides you with more diversification than you could get on your own, which in turn reduces the risk in your portfolio.
  
  

Asset Allocation

• Building a diversified portfolio means investing some of your money in stocks, some in bonds and some in safe fixed-income securities like money market accounts and certificates of deposit. The percentages you put into each asset class depends on a number of factors, including your tolerance for risk and what you need the money for. Your asset allocation needs change throughout your lifetime, so it is important to re-balance your portfolio from time to time.