People invest their money for several different reasons. You may want to save money for retirement, your child's education, or to one day own your own home. Regardless of your purpose for investing, you need to understand the basic forms of investments available to you - i.e., stocks, mutual funds, and bonds.

Stocks

Companies sell stock to raise capital, money for growth. When you buy a company's stock, you are purchasing partial ownership of that company because you now own a percentage of the company's shares. For example, if a company had 10,000 shares of stock outstanding and you bought 1,000 shares, then you would own 10 percent of the company and be entitled to 10 percent of the company's assets.

Purchasing stock is a way to invest in a single company. The value of your share(s) rises and falls with the performance of that company. This type of investment can be rewarding if the company's value skyrockets. However, bankruptcy, low earnings and other factors can cause the stock value to plummet. Certain companies pay stockholders dividends, a portion of the company's earnings, in cash or stock.

Mutual Funds

Mutual funds are a good investment avenue for people who don't have the time or expertise to actively trade stocks, bonds, or other securities. A professional fund manager invests the pooled money of investors into different stocks, bunds, money markets, annuities and other securities in a mutual fund. The goal of a mutual fund is to minimize risk for investors by diversifying the fund's portfolio while increasing the share value of the mutual fund.

When deciding on a mutual fund, you will want to check the fund's portfolio and understand the objective of the fund. Some mutual funds invest aggressively to earn higher returns for their investors, but these mutual funds are also more risky. You may also think a particular industry, like the medical industry, will grow significantly so you would want a mutual fund that invests accordingly.

Bonds

A bond is a loan. If you purchase a bond, then the issuer promises to repay you under the agreed upon terms. When a bond matures, the issuer repays the principal amount in full. Some bonds pay interest to the holder, you, at intervals before the bond matures. Bond length differs but is normally ten years or longer.

People buy bonds for various reasons. One benefit of a bond is the interest payments the bond holder receives. Depending on the bond, the bond holder may receive two interest payments per year. These payments are normally larger than dividends the company would pay stockholders.

The goal of investing is to gain a return on your money. Stocks, mutual funds, and bonds are only a few of the investment opportunities available to you, but they are the foundation of most investor's portfolios. You work hard for your money and you want your money to work hard for you. That's why understanding your financial options is crucial. You also want to be a diligent investor. Therefore, you may want to consult a certified financial planner before making investments.