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The most important thing you need in order to be a good investor is an understanding of your own risk tolerance and secondly, how each instrument relates to your tolerance. Thirdly, you need to know your investment horizon -which, for this discussion, is the time till your retirement.
First of all, what's a stock and what's a bond. Simply, a stock is a "peice of the company." if the company has 100 shares and is worth 100 dollars, each share costs and is worth one dollar. If you buy one share and the company becomes worth 200 dollars, your stock is now worth 2 dollars. Conversely, if the company goes under, your stock is worth zero. The sum of all the stock in a company equals 100% of the ownership of the company. As a stockholder, you ARE an owner of your respective share of the company.
What's a bond? A bond is a loan by you to the company or government entity. Nevada issues $100 dollars of bonds and you buy $1 of the issue. The bond pays 12% interest and matures in 20 years. So, you get 12 cents a year for 20 years and then you get your dollar back. Bonds are so fucking complicated, however, that you wouldn't believe it. The rules governing payout and what happens if the bond defaults and who gets paid first, second and third would make Einstein run for the hills.
Since most investors either don't understand or don't care to get that involved in individual stocks or bonds, funds exist that invest FOR you in a wide specturm of stocks or bonds. These are mutual funds (stocks) or bond funds. These funds iron out the irregularity of investing directly by spreading out the investment across a very specific category of stocks or bonds.
Bond funds are extremely safe but are low-return instruments. You ain't gonna get rich investing in bonds. I would invest no more than 10% in bonds.
Stocks are best invested in by buying mutual funds. This is basically giving 100 dollars to a smart guy/gal who eats and breathes stocks. He takes your money along with mine and "goes shopping" - buying and selling as (s)he sees fit to maximize the value of the "portfolio. Investing in a stock fund is a simple matter of choosing what type of fund suits you. A high-tech fund is high risk but potentially high reward. A S&P index fund mirrors the entire stock market and is essentially like investing in every stock in the entire market. More stable than a specialty fund and therefore has less upside/downside potential. If one company in the fund tanks, you won't even feel it. If you bought that company's stock directly, however, say bye to your money. A mutual fund typically has no more than 5% in any single company and usually not that much.
Vanguard is an excellent company. Call your rep - descibe your risk tolerance and choose a couple different stock funds. You can always change your future allocations if you change your mind.
Hope that helps.
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