Stocks, ETFs, Mutual Funds, and REITs

When you’re new to investing, it can feel like everyone is speaking a different language. Stocks. Mutual funds. Indexes. Tickers. It’s enough to make your head spin.

The good news is that most investors only need to understand a few basic building blocks to get started.

Let’s look at four of the most common investments.

Stocks: Owning part of a company

When you buy a stock, you’re buying a small amount of ownership in a company.

If you buy shares of a company like Apple, Nike, or Coca-Cola, you become a “shareholder”. If the company grows and becomes more valuable, the shares you own might increase in value too.

Some companies also pay dividends, which means they pay a portion of their profits to their shareholders.

Buying a stock means owning a small piece of a business.

The upside is that individual stocks can perform very well. The downside is that individual companies can struggle too.

ETFs: A basket of investments

ETF stands for “Exchange-Traded Fund”.

Think of an ETF like a basket filled with many different investments. Instead of buying one company, an ETF might allow you to own hundreds or even thousands of stocks all in one place. Think of it like a sampler platter instead of a single dish on a menu.

ETFs make diversification simple.

Rather than trying to pick winning companies one at a time, you can spread your money across many companies at once.

Mutual Funds: The original investment bundle

Mutual funds are very similar to ETFs, just an older version. A mutual fund pools money from investors and uses it to buy a collection of investments, just like ETFs.

The biggest difference between a mutual fund and an ETF is how they’re bought and sold. ETFs trade throughout the day like stocks, while mutual funds are typically bought and sold once a day after the stock market closes.

Many people own mutual funds without even realizing it. If you’ve contributed to a 401(k) or retirement account through your job, there’s a chance at least some of your money is invested in mutual funds.

Just like ETFs, mutual funds can be a great way to diversify your investments without having to pick individual stocks yourself.

REITs: Real estate without being a landlord

REIT stands for “Real Estate Investment Trust”. REITs own or finance real estate that produces income, such as:

• Apartment buildings
• Office buildings
• Shopping centers
• Warehouses
• Healthcare facilities

When you buy shares of a publicly traded REIT on the stock market, you’re getting an investment in real estate without having to buy, manage, or maintain properties yourself.

A lot of REITs also pay high dividends compared to traditional stocks.

REITs can be a way to invest in real estate without the headaches of being a landlord.

Which one is best?

The answer depends on your goals. Individual stocks can grow and pay dividends but can come with more risk. ETFs provide diversification and simplicity. So do mutual funds.

REITs can allow you to invest in real estate and often pay great dividends.

Many investors own a combination of all these.

You don’t have to choose just one.

Why it matters

Understanding these investments is an important first step toward becoming a more confident and successful investor.

You don’t need to memorize every investing term or become an expert overnight. You simply need to understand the basic tools available to you.

At Firreo, we use different types of investments for different purposes. Some help you diversify your investments, others can pay income and allow you to invest in different areas like real estate.

Successful investing is usually less about finding the perfect investment and more about building the right mix of investments over time.