Stock means that you own part or all of a company. For example, let's say that you and your brother form a company to start a bakery. The company issues 100 shares of stock. You own 50 shares and your brother owns 50 shares, which means you each own 50% of the bakery. Publicly traded companies like Apple, Google, and Amazon work the same way. If Apple has 16 billion shares of stock outstanding and you buy 100 shares of Apple, then you own 0.000000625% of Apple Inc. Although it feels decidedly less tangible to own a tiny percentage of Apple than it does to own half of a local business, your relationship to the company is the same. You own part of the company and, as an owner of the company, you should benefit if the company sells more stuff and makes more money.

A bond is a piece of paper (physical or digital) that a company gives you when you lend it money. Again, let's say you and your brother form a company and start a bakery. The company needs $3,000 to buy a new oven. You lend the company $3,000 of cash and, in exchange, the company gives you an IOU. The IOU says that the company promises to pay you $792 every year for the next 5 years. In other words, the company not only will give your $3,000 back to you, but it also will pay 10% interest. You'll receive a total of $3,960 from the company over the next 5 years, and that extra $960 is just because the company had the privilege of borrowing money from you.

Again, big publicly traded companies like Apple, Google, and Amazon work the same way. If you buy a bond from Apple, you agree to lend the company a certain amount of money for a certain amount of time. In exchange, Apple agrees to pay you principal plus interest at a fixed interval (e.g., every 6 months). You not only get your money back, but you get interest payments as well, just because Apple had the privilege of borrowing money from you.

Why would Apple borrow money from you? They borrow money because they believe that they can make an investment that will generate more return than the interest rate that they are paying you. For example, if they can borrow $100 million and build a new factory that will generate $500 million of profit for the next 10 years, they don't mind paying $11 million of interest to bondholders every year.

People often say that bonds are a safer, more conservative investment than stock. This is generally true because (a) bonds have payment priority in bankruptcy, and (b) interest payments on bonds generally are fixed and do not depend on whether the company has profits or losses. If a company goes bankrupt, bondholders will be repaid first, and stockholders get any leftover money. (Hint: there typically isn't any leftover money in bankruptcy for stockholders.) The lesson? This is another reason why we look for profitable companies and try not to buy stock (or bonds, for that matter) of companies that could potentially go bankrupt.

Preferred stock is a bit like a stock-bond hybrid. Preferred stock is great because preferred stockholders (1) are owners of the company, just like common (i.e., normal) stockholders, (2) generally get a higher dividend payout than common stockholders, and (3) get their money back after bondholders but before common stockholders in the event of bankruptcy. The price of preferred stock also tends to move less than the price of common stock, so you may not have as much of a rollercoaster ride owning preferred stock as you would common stock. The downside to this is that, if the company does really well, common stockholders can make a lot of money whereas preferred stockholders might not make as much money. But, preferred stock has its place, especially if the dividend payouts are high.

Certificates of Deposit or “CDs” are IOUs from a bank. When you buy a CD from a bank, you are agreeing to let the bank keep your money for a fixed period of time – usually anywhere from 3 months to 5 years. In exchange for the longer time period, the bank pays you a bit more interest than it would pay you on a normal savings account. Bank CDs are insured by the Federal Deposit Insurance Corporation (“FDIC”) and credit union CDs are insured by the National Credit Union Administration (“NCUA”), and this insurance can protect you if the bank you buy the CD from fails. But, because CD is simply an IOU from the bank or credit union that issues it, you can lose money if that institution goes under.

Securities is an umbrella term for any financial asset that you can, or could potentially, trade. Stocks are a type of security. Bonds also are a type of security. And, when cryptocurrency first came out, there was a big debate about whether it was a type of security and whether it should be regulated by the U.S. Securities and Exchange Commission (the "SEC").

A securities exchange is a place where you can buy or sell, well, securities. For example, you can buy and sell stocks, bonds, or options on the New York Stock Exchange, the Tokyo Stock Exchange, or the London Stock Exchange.

Portfolio is the fancy word for your collection of investments. For example, if you have invested in 3 stocks and some gold, then we say your portfolio is in stocks and gold. You’ll often see percentages associated with a portfolio. If you have $100 to invest and you invest $10 of that money in Amazon stock, we say that you invested 10% of your portfolio in Amazon.

Note that the word “portfolio” doesn’t reflect the type of account you have. For example, if you have $100 in a Roth IRA and $100 in brokerage account, your total portfolio is still $200. Portfolio simply refers to the money that you have to invest (a.k.a., your “investable assets).

An index is a list of stocks or other securities. This list is compiled by a private company. For example, let's say you and I wanted to make our own index of the 100 biggest food companies in Mexico. We could call it the MexFood100 Index. Similarly, Standard & Poor's ("S&P") is a company that publishes a list of the 500 largest and most prominent U.S. publicly traded companies. This index is called the "S&P 500 Index." There are a lot of indexes in the world — indexes that track Malaysian bonds, Turkish stocks, or lithium-ion battery companies. If you can think of a category or a type of investment, there is probably an index for it.

A fund is an investment product sold by a private fund company. Funds come in 2 primary flavors: mutual funds and exchange traded funds ("ETFs"). The difference between an ETF and a mutual fund is that shares of an ETF trade on a securities exchange, whereas mutual fund shares are purchased directly through the fund company (e.g., T. Rowe Price). If a mutual fund is an orange, then an ETF is orange juice — a slightly more processed financial product. There are more players involved in an ETF, which introduces more systemic risk. But ETFs have 2 primary benefits: (1) There is generally no minimum investment for an ETF, and (2) you can trade options on many ETFs to generate extra income. We generally prefer mutual funds to ETFs unless the ETF offers options trading.

An index fund is an easy way to "buy the whole market." Let's say you want to buy all of the stocks that are part of the S&P 500 index. One option would be to go out and buy all 500 stocks yourself. You would buy shares of Boeing, shares of American Express, shares of Biogen, and shares of 497 other companies. If this sounds expensive and extremely inconvenient, it is. So, fund companies like Vanguard, Schwab, State Street, and others offer an S&P 500 index mutual funds and S&P 500 ETFs. You buy shares of the mutual fund or ETF, and the fund buys shares of each company in the S&P 500.

The idea is that if the value of the securities inside the fund goes up or down, the value of your ownership interest in the fund also goes up or down. You can get financial returns that mirror the securities in the index without actually owning the underlying securities (stocks, bonds, etc.).

A hedge fund is an exclusive mutual fund with high fees. The fund is “exclusive” because it hasn’t jumped through the legal and regulatory hurdles that funds must jump through to in order to market and sell their shares to the general public. Instead, hedge funds operated under a limited regulatory exception. This exception allows the hedge fund to avoid compliance with certain securities laws as long as they only sell fund shares to people and entities that have a certain amount of money. The idea (or perhaps myth) here is that people above a certain wealth threshold should be sophisticated enough to evaluate investment risks for themselves. Some hedge funds simply invest in publicly traded stocks, while other funds use sophisticated options strategies or quantitative models. Hedge funds traditionally charge 2% of assets under management, plus 20% of any profits on the underlying investments (i.e., they’re expensive).

A private equity fund is a fund that invests in private companies. As we've seen, many stocks trade on public securities exchanges. Hedge funds, mutual funds, and ETFs generally buy and sell public securities. But, since 1990, the number of companies "going public" on exchanges has dropped, and a significant number of companies today are private companies whose stock does not trade on an exchange.

What happens if you want to invest in a private company? Generally, you have to invest in a private equity fund that owns shares in private companies. Private equity funds typically have high investment minimums and high fees; these funds also require you to show significant assets or income. However, publicly traded private equity funds can offer a way to invest in private companies. Crowdfunding platforms also attempt to democratize access to private companies.

Stocks, ETFs, and mutual funds all have unique identifying codes. For example, the ticker symbol for Apple stock is "AAPL" and the ticker symbol for Southwest Airlines stock is "LUV." When you buy and sell securities, you will enter the ticker symbol into the trade box inside your brokerage account to tell your brokerage firm that you would like to buy or sell the security.

As you become more comfortable placing trades, you’ll start to recognize patterns in ticker symbols. For example, mutual funds generally have ticker symbols that are five letters long, and the ticker symbol for a mutual fund always ends with the letter “X.” The ticker symbol for an ETF generally is 3 letters. Ticker symbols for individual stocks vary in length from one to five letters.

A basis point is one one-hundredth of a percentage point. For example, 50 basis points is one half of one percent (i.e., 0.5%). Seventy five basis points is three quarters of one percent (i.e., 0.75%).

Basis points often come up when you listen to news about the U.S. Federal Reserve. For example, you might hear, "The Federal Reserve raised the federal funds rate by 25 basis points today," which means the target interest rate went up by 0.25%.