Asset classes

Did you ever wonder what exactly stock, bonds, and other investments really are, anyway? Here’s the rundown. Each one of these is a specific asset class:

Stock represents part ownership, also called equity, in a publicly traded corporation. Each share of stock represents one unit of ownership. Investors buy stock hoping that they will get a share of the corporation’s profits in the form of dividends or be able to sell the shares at some point in the future for more than they paid to buy them.

Bonds are loans that you and other investors make to bond issuers, such as corporations and governments. When issuers borrow, they promise to pay back the amount of the loan at a specific time, plus interest. Bond investments are also called fixed-income investments because investors expect the original investment amount back plus regular interest income.

Cash and cash equivalents are the least risky types of investments, as you might expect, but you also tend to earn the least with them. Cash equivalents include certificates of deposit, money market funds, and Treasury bills.