Asset Types

Stocks

Defined as “a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.”

Bonds, Bond funds

Bonds are essentially an IOU from a corporation or government entity. They are a promise to the holder of the bond that the government or corporation will pay the holder a set amount of money at some agreed upon future date.

A bond fund, as you might imagine, is a fund invested mainly in bonds.

Funds

A fund is what occurs when a group of investors pool their money towards a unified objective; in most cases, this objective is financial returns.

Open-end funds are “open” because they freely buy and sell shares of the fund. When an individual wants to purchase a share, the fund creates a new one. When an individual wants to sell a share, the fund takes the share out of circulation.

Shares of an open-ended fund are bought and sold at the fund’s net asset value, which is simply the fund’s net assets divided by the amount of shares outstanding. These shares are not traded on an exchange.

Closed-end funds issue a set amount of shares, which are then traded among investors. The price is determined via supply and demand, and is not always equal to the fund’s net asset value.

Closed-end funds are launched in an IPO and traded in the open market throughout the day.

Futures

A future is a financial contract for a “buyer to purchase an asset or [a] seller to sell an asset” at a particular date and price. Futures can be contracts involving securities, commodities, or more. One thing to note is that with commodity futures, the contract obligates the purchase of a physical item, so be careful – you wouldn’t want to accidently hold a future until maturation and be obligated to buy and pick up twelve hundred bushels of corn.

Options

Options are similar to futures in that they involve a contract about buying or selling a security or commodity at a particular price and date. The crucial difference is that “the contract offers the buyer the right, but not the obligation, to buy (call) or sell (put) a security or other financial asset at an agreed-upon price (the strike price) during a certain period of time or on a specific date (exercise date)” (Investopedia).

Annuities

With an annuity, you give a financial institution a sum of money (either at once or over time), and in return they provide you with steady payments for a period of time. The accumulation phase is when the annuity is being funded and payments are not being made. The annuitization phase begins when payments start.