Investing

Saving vs. Investing

Savers place money in interest bearing securities with short-term maturities
(CD's, Bank accounts). The principal remains intact and earns interest.

Investors place some of their money in stocks, bonds and mutual fund where they take more risk for a higher return. 

The golden rule of investing is to know what it is you're trying to accomplish. It is important to understand before investing what the objective is of the individual/family, the time horizon, tax consequences and very importantly the risk tolerance.

Stock/Bond/Money Market basics

Stock: Share of ownership (equity) in a corporation.
Stock prices are affected by earnings, interest rates and many other factors.
Stock returns are from dividends and capital appreciation.

Bond: Debt (IOU) of a company, government
When interest rates go up, bond prices fall and yields rise
When interest rates go down, bond prices rise and yields fall

Money market/Cash: Securities that mature in 90 days or less
Principal is safe, periodic interest payments

Stocks, Bonds and Money Market (Cash) are called Asset classes.

Stock/Bond/Money Market performance

1. For a period in time (e.g. quarter, year) any of the three - Stocks, Bonds or Money market, may be the top performer.

2. Stocks are generally more volatile, followed by bonds and money market.

3. Bonds have the highest potential for current income (yield).

4. Over the longer term, Stocks have outperformed bonds and the money market on a Total return (dividends + share price appreciation) basis.

Check out the comparison of Stock, Bond and Money market performance here
Check out Stock market returns short term vs. long term here
Check out the stock market's good and bad years here.
Check out how bonds can produce reasonable returns with less risk here

Stock/Bond Index names

The Index: Old and New

Traditional Index: S&P 500 

QuasiTraditional: S&P 500 Equal Weighted Index

Untraditional: RAFI 1000  
                     Wisdom Tree 
                     Intellidexes