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Investing Basics


Welcome to the world of investing! Whether you’re new to investing or need a refresher, we’ve got information to help you get started.

Busy but want to get smarter about investing? FINRA offers quick courses to build essential investment knowledge and skills. Try a course today.

Securities Investing

When most people talk about investing, they’re usually referring to investments in stocks, bonds and investment funds, which are all types of securities.

  • If you own shares of stock, you hold equity securities, meaning you're part owner of (have an equity stake in) the company that issued those shares.
  • If you own bonds, you hold debt securities. The issuer of the bond compensates you for the risk you take in loaning them money by paying you interest (also called yield) plus the return of your initial investment.
  • Mutual funds and exchange-traded products (ETPs) are additional ways to invest in securities. A single mutual fund or ETP, such as an exchange-traded fund (ETF), might contain dozens, or even thousands, of stocks, bonds and other securities.

The more you know about the types of investments you own or are considering, the better investment decisions you're apt to make.

Regulation Helps Safeguard Investors

Regulation by government regulators—such as the Securities and Exchange Commission (SEC) and state securities regulators—and by FINRA, a government-authorized not-for-profit regulator, protects investors through rules, supervision and enforcement. Two tenets in particular—disclosure and transparency—form the basis for many individual regulations and requirements and are hallmarks of U.S. securities markets. They're important to understand, as they not only protect investors but lend integrity to markets.

Disclosure as it relates to stocks and bonds is information about a company’s financial condition and business that the company is required to make public. This information is integral to helping investors make informed investment decisions about the company’s securities. Earnings reports and statements that contain material news that could affect a company’s financial condition are examples of this company disclosure.

Investment products such as bonds, variable annuities, ETFs and mutual funds are also required to provide investors with disclosure documents. These documents explain the investment and provide information about risks, fees and other details that help investors determine if the investment is right for them. In addition, regulators, including FINRA, may review a broker dealer’s public communications such as social media and advertising to help ensure information about an investment product or service is fair, balanced and not misleading.

Securities firms must also disclose a variety of information to their clients. For instance, when a firm or its representatives make recommendations to retail customers, the SEC Regulation Best Interest requires disclosure to customers about the services they provide and fees they charge. In addition, firms must disclose and manage conflicts of interest that might compromise their obligations to customers. Securities firms that offer services to retail investors must also deliver a brief customer or client relationship summary—Form CRS—that provides information about the firm and is designed to assist retail investors in choosing a financial professional and services.

Transparency is the ability of market participants to obtain information about the trading process of securities. Price, order size, trading volume and trader identity are all key aspects of transparency. In general, the more transparent an investment product and the market or markets in which it trades, the less risky it is because investors and regulators can see what’s going on.

Disclosure and transparency are an investor’s allies. But it’s up to each investor to read and understand what's disclosed and pay attention to the information markets make visible.   

Tips for Successful Investing

Whether you want to make the most of your money or make sure you preserve your assets, remember that sound investing is all about setting goals, taking informed actions and balancing risks. You’ll also want to avoid pitfalls that can result in unnecessary losses or missed opportunity. Here are a few tips to help you succeed as an investor.

1. Set investment goals. Identify your most important short-, medium and long-term financial goals. Next, estimate how much each goal will likely cost. It’s often a good idea to set up separate savings or investment accounts for each of your major investment goals.

2. Know your investment time frame. When you need your money often determines how you'll invest it. Too often, investors realize they need money sooner than expected and are forced to sell when the market is against them.

3. Be patient. Investing for the long term (buying and holding) generally works out better than trying to make a quick score.

4. Test the waters. If you’re new to investing, wade into the experience rather than jump in headfirst. If you work with an investment professional, take time to build mutual trust. As you grow your portfolio, you can diversify your assets among different accounts or work with different investment professionals.

5. Explore investing through your company’s retirement plan. If your employer offers a 401(k) or similar retirement savings program, think of it as a potential on-ramp to investing. There are often incentives to doing so, like a company match, or tax benefits.

6. Educate yourself. Know what you're investing in, especially if it's an investment you aren’t familiar with. How does it work? What fees will you pay? Understand and track the investments you own. Learn about asset allocation and diversification so you don’t bet the ranch on a single investment. Avoid hunches and hot tips. And never stop educating yourself about investing!