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Understanding investment types

Finding individual stocks and bonds

There are thousands of individual investments you could choose. Here are some ways to narrow your options down.
5 minute read

Points to know

  • You can narrow down stocks by looking at certain types of companies, or by considering metrics like growth and volatility.
  • When buying bonds, you'll need to think about your purchasing strategies as well as the types of issuers you're interested in.

Mutual fund

A type of investment that pools shareholder money and invests it in a variety of securities. Each investor owns shares of the fund and can buy or sell these shares at any time. Mutual funds are typically more diversified, low-cost, and convenient than investing in individual securities, and they're professionally managed.

ETF (exchange-traded fund)

A type of investment with characteristics of both mutual funds and individual stocks. ETFs are professionally managed and typically diversified, like mutual funds, but they can be bought and sold at any point during the trading day using straightforward or sophisticated strategies.

Diversification

The strategy of investing in multiple asset classes and among many securities in an attempt to lower overall investment risk.

KEEP IN MIND

The core of your portfolio should be made of mutual funds or ETFs (exchange-traded funds), which offer diversification and lower costs. Generally speaking, individual securities should make up only a small portion of your investments, if any. 

See more about mutual funds, ETFs & individual securities

Stock

Usually refers to common stock, which is an investment that represents part ownership in a corporation. Each share of stock is a proportional stake in the corporation's assets and profits.

Capitalization

The total value of a company's stock that is available to be traded.

Sector

A group of stocks, often related to a particular industry, that have certain shared characteristics.

Fundamentals

Quantitative data about a company, like its price/earnings ratio, balance sheet, and cash flow.

Individual stocks

You can focus on stocks by capitalization or sector. You may also want to look into other fundamentals such as the ones below.

Share

A single unit of ownership in a mutual fund or an exchange-traded fund (ETF) or, for stocks, a corporation.

Earnings per share

This divides a company's net profit by the number of stock shares available for trading. By looking at a stock's earnings per share over a period of several months or years, you can see how the company has grown.

Price/earnings ratio

This divides the stock's share price by the amount of earnings it's distributed in the last 12 months (per share). A high price/earnings ratio indicates that investors are expecting more growth in the future.

Because different industries have different prospects for growth, this indicator is mainly useful when comparing companies within the same industry.

Price/book ratio

This divides a stock's share price by the total value of all the company's assets minus its liabilities (per share). If the price/book ratio is low, the shares may be undervalued.

Volatility

The degree to which the value of an investment (or an entire market) fluctuates. The greater the volatility, the greater the difference between the investment's (or market's) high and low prices and the faster those fluctuations occur.

52-week high/low

This represents the highest and lowest prices at which the stock has traded in the past year. A stock that nears or passes its previous high or low could see additional trading volume and volatility.

Dividend

The distribution of the interest or income produced by a fund's holdings to its shareholders, or a payment of cash or stock from a company's earnings to each stockholder.

Dividend yield

This divides the value of dividends paid in the past year (per share) by the stock's current share value. This can indicate how much of a company's cash flow is being passed through to investors.

Market

The trading of a universe of investments, based on factors like supply and demand. For example, the "stock market" refers to the trading of stocks.

Beta

This measures how volatile the stock is compared with the overall market.

We have resources that can help you research individual stocks.

Use our stock screener to find specific stocks (logon required)

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Bond

A bond represents a loan made to a corporation or government in exchange for regular interest payments. The bond issuer agrees to pay back the loan by a specific date. Bonds can be traded on the secondary market.

Primary market

A place where investments are initially offered to buyers. The primary market for stocks is an initial public offering (IPO). For bonds, purchasing on the primary market means you buy directly from the bond's issuer and pay face value.

Secondary market

A place where investors buy and sell to each other (rather than buying directly from a security's issuer). Most stock and bond trading happens on the secondary market.

Ladder

A tool in the management of a bond portfolio that can be used to increase rewards or reduce risks by purchasing a number of bonds and structuring their maturities over time so that they mature at different dates. For example, buying 5-, 10-, 15-, and 20-year maturity bonds of equal value would be a bond ladder.

Barbell

An bond investing strategy where an investor holds about half of his or her portfolio in long-term bonds and the other half in extremely short-term bonds, in an effort to increase risk-adjusted returns.

Maturity

The length of time between a bond's issue date and when its face value will be repaid.

Risk

Usually refers to investment risk, which is a measure of how likely it is that you could lose money in an investment. However, there are other types of risk when it comes to investing.

Individual bonds

As you consider your bond purchases, keep these questions in mind:

  • Will you buy on the primary market or on the secondary market?
  • Will you buy Treasury bonds, corporate bonds, or some other type of bonds?
  • Could you benefit from buying tax-exempt municipal bonds?
  • Will you buy bonds that form a ladder, barbells, or another strategy?
  • Do you plan to sell your bonds, or hold them to maturity?
  • Are you concerned about the potential for bonds to be called early?
  • What level of risk are you willing to take with your bonds?

We have resources that can help you research individual bonds.

Search bonds offered through Vanguard

See information about upcoming Treasury auctions

See public filings for thousands of corporate bond issuers

Find information about specific municipal bond issues

More education on bonds

Use bonds for income & stability

Get started trading bonds

See education on bonds from the Financial Industry Regulatory Authority (FINRA)

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All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Bonds are subject to the risk that an issuer will fail to make payments on time and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.