The Four Pillars of Investing: Bonds, Stocks, Mutual Funds and Exchange-Traded Funds (ETFs)

As we grow older, the need to become more financially secure becomes more and more prominent in our minds.

This is especially true if you’re planning to raise a family, plan a wedding, build a house, or achieve any other significant life milestone in the near future.


While your job or business can serve as your active income stream, investing your cash effectively can compound your financial growth and help you achieve financial freedom sooner than you otherwise would have.

This is especially true if you choose to invest in the right passive income streams.

In this article, we’ll delve into four of the main pillars of investing: bonds, stocks, mutual funds, and ETFs.

In particular, we’ll define each of these investment vehicles and help you understand them in more detail. This, consequently, can help you make smart decisions with your finances.

Let’s begin!

The Four Pillars of Investing

There are several ways you can grow your cash, but only a select few prove consistently successful and readily accessible to everyday investors.

We’ll touch upon the four fundamental investment vehicles that you can consider going into right now.

      1.Bonds – Stable Income Stream

If you’re a fairly conservative and low-risk investor, bonds are a great investment option. In essence, they are a tradeable asset wherein the government or a corporation acts as a lender. 

The money you make from a bond is equivalent to you paying a bank or lender an interest fee. But in this case, you’re the one on the receiving end!

Instead of receiving interest based on a percentage though, bonds provide a fixed income called a coupon payment. When the bond’s term comes to an end, the issuer will also return the principal to you.

Bonds are considered safer than stocks because they are considered debt security, which means they’re less volatile and more stable. 

Furthermore, you’re not investing in the profitability of a company; rather, you’re lending out your money and getting a small percentage in return.

Many types of bonds are fixed-rate bonds, which are a type of bond that doesn’t fluctuate at all and provide consistent monthly returns. That said, some bonds have fluctuating payments, so it’s important to know what you’re investing in before going all in on it.

The risk of bonds depends on the creditworthiness of the issuer. If the issuer is a stable government, the risk is low. However, if you’re getting a corporate bond from a company, the risk of default is higher depending on whether the company can fulfil its promises.

        2. Stocks – Long-Term Growth Potential

Stocks are perhaps one of the first assets that come to mind when it comes to investing. When you invest in stocks, you become a shareholder in a company, entitling you to ownership and a share of its profits.

The consequence of this is if the stock price falls under, so too will your investment’s worth. This can happen when the company bears the brunt of negative market behaviour and corrects its stock value accordingly.

That said, historically speaking, stock prices do tend to increase over time.  For instance, Apple’s stock price in 2000 was a measly 0.69 per share, whereas it’s well over three digits per share as of 2023.

Furthermore, investing in certain stocks can give you a dividend incentive, which is a great way to boost your income even more.

There’s no clear path to investing in stocks, but you as an investor have the liberty to choose which stocks to invest in and when to exit. 

You can also learn from trading experts on the technical side of stock trading, which can put you above the rest and help you cash in more for your initial investment. 

      3.Mutual Funds – Diversified Investment Approach

If you’re a newbie investor and would rather have professionals handle your portfolio, that is indeed a possibility thanks to mutual funds.

Mutual funds offer a diversified investment approach that utilises a pool of money from other investors to create a fund.

This fund is managed by a dedicated fund manager, typically from a bank or financial company. They are responsible for growing your money through bonds, assets, and other securities as seen fit.

The advantage of mutual funds lies in their diversification and flexibility. If one stock underperforms, for instance, the bond and other stocks in the portfolio may offset potential losses. You can also put as much money as you want as the initial investment, whether it’s a penny or a clean $2,000.

For people with a balanced risk appetite, mutual funds serve as a great middle-ground in terms of investment risk. That said, each mutual fund comes with its own history and set of variables, so consider researching them further before fully committing to one.

      4.Exchange-Traded Funds (ETFs) – Low-Cost and Flexible Investment

ETF is a fund type that consists of multiple stocks, typically blue-chip stocks. Similar to mutual funds, ETFs pool money from multiple investors to form a fund. 

The difference lies in the fact that ETFs are traded on stock exchanges like individual stocks. This provides investors with the ability to buy and sell shares throughout the trading day.

One of the key advantages of ETFs is their cost-effectiveness. They often have lower expense ratios compared to mutual funds, meaning investors pay fewer fees, resulting in potentially higher returns. 

This is compounded by the fact that you don’t need to go through an intermediary to invest in an ETF. 

ETFs also provide transparency, as their holdings are disclosed daily, allowing investors to monitor the fund’s value at any time throughout the trading day.

ETFs are a viable investment option, but just like other investments, it does come with its own share of risks. Their value can fluctuate based on the performance of the underlying assets, so be sure to assess market conditions before buying.

Other Investment Vehicles

While the four investment types above are good to start, the world of investing is vast and varied. 

Here are other investment vehicles that you can consider putting in your portfolio:

  • Real Estate Investment Trusts (REITs): Companies that own or finance income-generating real estate across various sectors.
  • Certificates of Deposit (CDs): Time deposits offered by banks with fixed interest rates and maturity dates.
  • Commodities: Physical assets like gold, silver, oil, and agricultural products that can be traded on commodity exchanges.
  • Cryptocurrencies: Digital currencies based on blockchain technology such as Bitcoin, Ethereum, and Cardano.

Each of these investment vehicles has the potential to spike your income potential, but only if you choose them wisely.

Consider consulting online resources such as those available at LY Lawyers to ensure you do not run afoul of any relevant regulations before you begin investing.