Investing for beginners: Top 10 questions, answered

If you’re just getting started, investing may seem inaccessible and confusing. But all the basic concepts and jargon can be easily demystified so you can build your confidence. Here’s a breakdown.

“Shares” are the ownership certificates of a specific company. Owning stock, on the other hand, is a more general term that means you own a number of shares in a company or multiple companies. People often use the terms interchangeably. Whether you call it a “share,” “equity,” or “stock,” it means you have some ownership in a company’s assets and earnings.

Bonds are issued by companies, states and federal governments (in both the U.S. and abroad) to help finance projects. For example, if an airline wants to buy new planes, it may issue bonds to borrow money from investors in the market. An investor who buys a bond loans money to the corporation or government entity for a set time at a fixed interest rate. This rate is determined by many factors such as the bond’s maturity length, what’s going on in the economy and how risky it may be to lend to that company.

In general, a bond is a more conservative investment than a stock. In an investment fund, bonds may be used to help balance the potential gains or losses in stocks.

Investing in the market carries some risk; no one knows for sure how well companies may perform in the future. An investment of any kind is determining out how to balance risk and reward. In general, riskier investments may have more potential for growth—but also for loss, too. A more conservative investment like bonds may have less risk, but also less potential for growth. Your level of comfort, experience and timeline, or how many years you have until you need the funds, help determine your risk tolerance.

A mutual fund is a pool of investments created by a money manager, who invests in various asset classes like stocks and bonds. Think of it like this: rather than buying one share of a single company’s stock, investing in a mutual fund lets you invest in a larger portfolio of many companies, including a little piece of that single company.

Exchange-traded funds, better known as ETFs, work similarly to mutual funds but may have different fee structures that may be lower. Typically, that’s because most ETFs are structured to track an existing market index, attempting to replicate an investment strategy.

TDFs are target date funds; these are a mix of investments in an investment fund that aligns with a specific date. These funds can be used to help support financial goals such as retirement. They are diversified to shift risk as it gets closer to that date.

That depends. If you want to invest on your own without the support of a financial professional, you’ll need an investment account at a brokerage firm. (Some of these accounts require a minimum balance to get started; others may not.)

Before the internet, potential and current investors called brokers on the phone with instructions to buy and sell stocks on their behalf. Today, independent investors have more online options.

It depends. Many investment firms require you to pay a transaction fee to purchase a stock, mutual fund, or ETF. The fee varies based on a number of factors and may also apply if you decide to sell the investment.

Along with the one-time transaction costs, mutual funds and ETFs also have ongoing fees called expense ratios. These require you to pay an annual percentage. For example, if you want to invest $1,000 in a mutual fund that has a 0.5 percent expense ratio, you will pay $5 over the course of the year.

Other fees may apply.

There are a couple of different ways to make money from investing that can then be taxed.

First, the value of your investment can increase over time, which is known as a capital gain. You won’t pay taxes on this until you sell the investment and the gain is “realized.” If you sell the investment before you’ve held it for a full year, you’ll pay taxes at your regular income tax rate. If you wait for the one-year mark, you will only pay at the capital gains rate of 15 percent. Learn more about short-term and long-term capital gains.

Secondly, stocks can pay dividends, a form of profit sharing with investors. However, some companies choose not to pay dividends at all and reinvest those profits back into the company itself (which can pay off in terms of capital gains down the line). Bonds pay interest income, similar to how you would pay interest to the bank if you took out a loan. These payouts are taxed in the year you receive them at your normal income tax rate, with a few exceptions. (One exception is qualified dividends, an IRS designation for certain types of stocks. They’re taxed at a lower rate of 0% to 20%, depending on your income.)

You have the option to sell your investments and transfer the proceeds out of your investment account. There may be tax consequences for doing so.

If you’re selling during a market dip, that decline may be temporary. Short-term price fluctuations are common when investing, but if you choose to sell at that moment, you lock in those losses. Having an investment strategy can help guide you when making financial decisions.

A version of this article originally appeared on HerMoney.