Common Stocks
Common stocks represent ownership in a company. Shareholders may benefit from price appreciation and dividends. Owning stock typically means taking a Long Position position.
Options
Options are contracts that give the right, but not the obligation, to buy or sell an underlying asset at a set price before expiration. They can be used for speculation or hedging. Explore more in options basics for beginners.
Exchange-Traded Funds (ETFs)
ETFs pool investor money to buy a diversified basket of assets. They trade on exchanges like stocks and often distribute income. See ETF for a concise definition.
Real Estate Investment Trusts (REITs)
REITs own or finance income-producing real estate and must pay out most of their taxable income as dividends. Learn more in Understanding REITs, Marginal Tax Rates, and the QBI Deduction.
Comparing the Vehicles
- Ownership: Stocks and REITs confer direct ownership; ETFs and options do not.
- Income: REITs and many ETFs pay regular dividends. Stocks may pay dividends. Options typically provide income only when selling premium.
- Risk: Options can expire worthless and may amplify losses. Stocks, ETFs, and REITs expose investors to market risk but generally cannot drop below zero.
- Liquidity: All four trade on major exchanges and can be bought or sold during market hours.