INVESTMENT 101

Investment 101

 

 Types Of Investments

 

We’ve already mentioned that there are many ways to invest your money. Of course, to decide which investment vehicles are suitable for you, you need to know their characteristics and why they may be suitable for a particular investing objective. 

Bonds 
Grouped under the general category called fixed-income securities, the term bond is commonly used to refer to any securities that are founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out. 

The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-free. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities.

Stocks 
When you purchase stocks, or equities, you become a part owner of the business. This entitles you to vote at the shareholders’ meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends

While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren’t guaranteed anything. Many stocks don’t even pay dividends, in which case, the only way that you can make money is if the stock increases in value – which might not happen. 

Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential.

Mutual Funds 
mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you (as part of a group) to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stockssmall stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain countries, etc. 

The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment. Theoretically, you should get a better return by giving your money to a professional than you would if you were to choose investments yourself. In reality, there are some aspects about mutual funds that you should be aware of before choosing them, but I won’t discuss them here.

Alternative Investments: Options, Futures, FOREX, Gold, Real Estate, Etc. 
So, you now know about the two basic securities: equity and debt, better known as stocks and bonds. While many (if not most) investments fall into one of these two categories, there are numerous alternative vehicles, which represent the most complicated types of securities and investing strategies.

The good news is that you probably don’t need to worry about alternative investments at the start of your investing career. They are generally high-risk/high-reward securities that are much more speculative than plain old stocks and bonds. Yes, there is the opportunity for big profits, but they require some specialized knowledge. So if you don’t know what you are doing, you could get yourself into a lot of trouble. Experts and professionals generally agree that new investors should focus on building a financial foundation before speculating.

Follow me on twitter via chickynato

Or askbadaru.wordpress.com

INVESTMENT 101

ImageinvestInvestment 101

 

 Types Of Investments

 

We’ve already mentioned that there are many ways to invest your money. Of course, to decide which investment vehicles are suitable for you, you need to know their characteristics and why they may be suitable for a particular investing objective. 

Bonds 
Grouped under the general category called fixed-income securities, the term bond is commonly used to refer to any securities that are founded on debt. When you purchase a bond, you are lending out your money to a company or government. In return, they agree to give you interest on your money and eventually pay you back the amount you lent out. 

The main attraction of bonds is their relative safety. If you are buying bonds from a stable government, your investment is virtually guaranteed, or risk-free. The safety and stability, however, come at a cost. Because there is little risk, there is little potential return. As a result, the rate of return on bonds is generally lower than other securities.

Stocks 
When you purchase stocks, or equities, you become a part owner of the business. This entitles you to vote at the shareholders’ meeting and allows you to receive any profits that the company allocates to its owners. These profits are referred to as dividends

While bonds provide a steady stream of income, stocks are volatile. That is, they fluctuate in value on a daily basis. When you buy a stock, you aren’t guaranteed anything. Many stocks don’t even pay dividends, in which case, the only way that you can make money is if the stock increases in value – which might not happen. 

Compared to bonds, stocks provide relatively high potential returns. Of course, there is a price for this potential.

Mutual Funds 
mutual fund is a collection of stocks and bonds. When you buy a mutual fund, you are pooling your money with a number of other investors, which enables you (as part of a group) to pay a professional manager to select specific securities for you. Mutual funds are all set up with a specific strategy in mind, and their distinct focus can be nearly anything: large stockssmall stocks, bonds from governments, bonds from companies, stocks and bonds, stocks in certain industries, stocks in certain countries, etc. 

The primary advantage of a mutual fund is that you can invest your money without the time or the experience that are often needed to choose a sound investment. Theoretically, you should get a better return by giving your money to a professional than you would if you were to choose investments yourself. In reality, there are some aspects about mutual funds that you should be aware of before choosing them, but I won’t discuss them here.

Alternative Investments: Options, Futures, FOREX, Gold, Real Estate, Etc. 
So, you now know about the two basic securities: equity and debt, better known as stocks and bonds. While many (if not most) investments fall into one of these two categories, there are numerous alternative vehicles, which represent the most complicated types of securities and investing strategies.

The good news is that you probably don’t need to worry about alternative investments at the start of your investing career. They are generally high-risk/high-reward securities that are much more speculative than plain old stocks and bonds. Yes, there is the opportunity for big profits, but they require some specialized knowledge. So if you don’t know what you are doing, you could get yourself into a lot of trouble. Experts and professionals generally agree that new investors should focus on building a financial foundation before speculating.

Follow me on twitter via chickynato

Or askbadaru.wordpress.com

INVESTMENT 101

Investment Objectives 
Generally speaking, investors have a few factors to consider when looking for the right place to park their money. Safety of capital, current income and capital appreciation are factors that should influence an investment decision and will depend on a person’s age, stage/position in life and personal circumstances. A 75-year-old widow living off of her retirement portfolio is far more interested in preserving the value of investments than a 30-year-old business executive would be. Because the widow needs income from her investments to survive, she cannot risk losing her investment. The young executive, on the other hand, has time on his or her side. As investment income isn’t currently paying the bills, the executive can afford to be more aggressive in his or her investing strategies. 

An investor’s financial position will also affect his or her objectives. A multi-millionaire is obviously going to have much different goals than a newly married couple just starting out. For example, the millionaire, in an effort to increase his profit for the year, might have no problem putting down 100,000 in a speculative real estate investment. To him, a hundred grand is a small percentage of his overall worth. Meanwhile, the couple is concentrating on saving up for a down payment on a house and can’t afford to risk losing their money in a speculative venture. Regardless of the potential returns of a risky investment, speculation is just not appropriate for the young couple. 

As a general rule, the shorter your time horizon, the more conservative you should be. For instance, if you are investing primarily for retirement and you are still in your 20s, you still have plenty of time to make up for any losses you might incur along the way. At the same time, if you start when you are young, you don’t have to put huge chunks of your paycheck away every month because you have the power of compounding on your side. 

On the other hand, if you are about to retire, it is very important that you either safeguard or increase the money you have accumulated. Because you will soon be accessing your investments, you don’t want to expose all of your money to volatility – you don’t want to risk losing your investment money in a market slump right before you need to start accessing your assets. 

Personality 
What’s your style? Do you love fast cars, extreme sports and the thrill of a risk? Or do you prefer reading in your hammock while enjoying the calmness, stability and safety of your backyard? 

Peter Lynch, one of the greatest investors of all time, has said that the “key organ for investing is the stomach, not the brain”. In other words, you need to know how much volatility you can stand to see in your investments. Figuring this out for yourself is far from an exact science; but there is some truth to an old investing maxim: you’ve taken on too much risk when you can’t sleep at night because you are worrying about your investments. 

Another personality trait that will determine your investing path is your desire to research investments. Some people love nothing more than digging into financial statements and crunching numbers. To others, the terms balance sheetincome statement and stock analysis sound as exciting as watching paint dry. Others just might not have the time to plow through prospectuses and financial statements. 

Putting It All Together: Your Risk Tolerance 
By now it is probably clear to you that the main thing determining what works best for an investor is his or her capacity to take on risk

There are some core factors that determine risk tolerance, but remember that every individual’s situation is different and that what we’ve mentioned is far from a comprehensive list of the ways in which investors differ from one another. The important point of this section is that an investment is not the same to all people. Keep this in the back of your mind for upcoming sections of this tutorial. 
If you are not sure about how you would react to market movements, I can suggest one good starting point: try starting up a mock portfolio in a free investing simulator, which gives you 100,000 of virtual money in an account that tracks the real stock market. The simulated experience of investing can really help you know your head, your habits and your stomach before you invest even one real cedi. 

 Follow me on twitter via chickynato

askbadaru.wordpress.com

Investing 101: What Is Investing?

The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit

It’s actually pretty simple: investing means putting your money to work for you. Essentially, it’s a different way to think about how to make money. Growing up, most of us were taught that you can earn an income only by getting a job and working. And that’s exactly what most of us do. There’s one big problem with this: if you want more money, you have to work more hours. However, there is a limit to how many hours a day we can work, not to mention the fact that having a bunch of money is no fun if we don’t have the leisure time to enjoy it 

You can’t create a duplicate of yourself to increase your working time, so instead, you need to send an extension of yourself – your money – to work. That way, while you are putting in hours for your employer, or even mowing your lawn, sleeping, reading the paper or socializing with friends, you can also be earning money elsewhere. Quite simply, making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime or look for a higher-paying job. 

There are many different ways you can go about making an investment. This includes putting money into stocksbondsmutual funds, or real estate (among many other things), or starting your own business. Sometimes people refer to these options as “investment vehicles,” which is just another way of saying “a way to invest.” Each of these vehicles has positives and negatives, which we’ll discuss in a later section of this tutorial. The point is that it doesn’t matter which method you choose for investing your money, the goal is always to put your money to work so it earns you an additional profit. Even though this is a simple idea, it’s the most important concept for you to understand. 

What Investing Is Not 
Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a “hot tip” you heard at the water cooler is essentially the same as placing a bet at a casino. 

True investing doesn’t happen without some action on your part. A “real” investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still is risk, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side. 

Why Bother Investing? 
Obviously, everybody wants more money. It’s pretty easy to understand that people invest because they want to increase their personal freedom, sense of security and ability to afford the things they want in life. 

 
However, investing is becoming more of a necessity. The days when everyone worked the same job for 30 years and then retired to a nice fat pension are gone. For average people, investing is not so much a helpful tool as the only way they can retire and maintain their present lifestyle. 


INVESTMENT 101

Have you ever wondered how the rich got their wealth and then kept it growing? Do you dream of retiring early (or of being able to retire at all)? Do you know that you should invest, but don’t know where to start? 

If you answered “yes” to any of the above questions, you’ve come to the right place. In this tutorial we will cover the practice of investing from the ground up. The world of finance can be extremely intimidating, but we firmly believe that the stock market and greater financial world won’t seem so complicated once you learn some of the lingo and major concepts. 

We should emphasize, however, that investing isn’t a get-rich-quick scheme. Taking control of your personal finances will take work, and, yes, there will be a learning curve. But the rewards will far outweigh the required effort. Contrary to popular belief, you don’t have to let banks, bosses or investment professionals push your money in directions that you don’t understand. After all, no one is in a better position than you are to know what is best for you and your money.

Please join me and lets talk about money

Investment 101

Have you ever wondered how the rich got their wealth and then kept it growing? Do you dream of retiring early (or of being able to retire at all)? Do you know that you should invest, but don’t know where to start? 

If you answered “yes” to any of the above questions, you’ve come to the right place. In this tutorial we will cover the practice of investing from the ground up. The world of finance can be extremely intimidating, but we firmly believe that the stock market and greater financial world won’t seem so complicated once you learn some of the lingo and major concepts.