Equities and bond funds are two of the many investment vehicles available to investors. Other vehicles include money market funds, mutual funds and real estate.
An equity fund, also known as a stock fund, is a mutual fund that invests primarily in stocks.
Stocks are shares of ownership in a company. Shares represent a claim on a company’s assets and earnings. The more stock an investor acquires of a particular company, the bigger that investor’s ownership in that company is.
The main types of stocks are common stock and preferred stock. With common stock an investor has one vote per share to elect the board members who represent the stockholders to the company. With preferred stock, depending on the company, the voting rights to elect the board may or may not be available.
Bond funds are made up of bonds and other securities. A bond is basically an IOU. It is an agreement between the bond issuer and the bond purchaser that the bond issuer will pay the bond purchaser interest for use of the monies given for the bond and the face value of the bond when it comes due.
Bond fund types
There are several types of bond funds an investor can choose to invest in; they include government bonds, municipal bonds, corporate bonds and international bonds.
Investors usually choose bond funds to add diversity to their portfolios, and to generate consistent streams of income. Stocks are considered a more risky investment and are often chosen for long-term investing.