Investing for beginners
Stocks and Bonds
Why does investing seem so complicated?
The volume of ways you can invest is incredible. The worst part is the fact that investment world uses a different terminology. Should you be new to investing clothing long before you encounter words like accretion, moving averages,amortization,average weighted price, open interest, futures and option, book closure etc. Allow me to stop before I place you to sleep. All you really need to do is to place your money in something where it'll be safe and grow. Is that too much to ask for?
How come there so many different investing alternatives?
Is it really different! Have you ever been to a market you will see boxes of detergents, most of which will probably be labeled new! Improved! or even better New and Improved! But no matter what they call it, when its all said and done these boxes are filled with nothing more than SOAP, identical to they have always been.
Investments are not any different. At first glance it may appear that all these mutual funds, unit trust, REIT's, options, futures are unique and wish encyclopedic knowledge to understand the technicalities. But usually what you are looking at is not more than just an old means of investing in a new box. okpay hyip
Understanding purchasing simple terms:
In a family tree you will have a male and a female at the top of list from where other branches came out. Similarly in investments at the top you have stock and bond. All other forms of investments are a few form or other present in. And their differences could be spotted just as easily as possible distinguish a man from the woman.
What are bonds and stocks and what is the difference forwards and backwards?
I will compare stocks with a racing car; all powerful snazzy, attractive, dangerous, accident prone and bonds to the family car; nothing much to look at, slow, always walks you where you are going, ever present for you.
Some basic traits of the:
People investing in stocks need to see a return on their money, bond holders intend to make sure the return with their money.
Stocks have to do with taking risk and bonds have to do with avoiding risk.
Stocks offer unlimited upside potential, bonds offer limited downside potential.
Stocks mean ownership and bonds denote loaning. So we can say one is an ownership investment and yet another is a loan investment.
The difference between an ownership investment and a loan investment is just not too hard to understand. The differences are obvious knowing what to look for.
An ownership investment doesn't have an ending date. (When you buy a stock it never becomes due, you have to sell it to get cash)
Loan investments usually have a due date (e.g. your fixed deposits with the bank)
Ownership investments rarely promise a unique return. A stock price can go up 10 times or remain static for decades.
Loan investments nearly always promise a fixed return. A six month deposit certificate promises 4% return.
Third major distinction is whether or not you will get your money back.
In ownership investment there may be no such guaranty. A stock's price can turn to zero.
The loan investments are often backed by the guaranty of the bank or the government.
With all the above distinctions in your thoughts try to figure out what you're invested in.
Few examples: your bank checking account or Government bonds: loan investment
stock or mutual fund: ownership investment
What can i invest in?
Having an excessive amount of investment in one type can be bad for the investor. Loan investments can't seem to keep pace with inflation, you may have your money safe but the purchasing power decreases. Too much risk avoidance can lead to less return. Similarly Ownership investments can give you without a penny in your pocket. Idea is always to keep a balance between the two. Neither is in a sounding good or bad or one better than the other investment rather they serve different needs. Needs which can vary from one person to the other depending on ones investment time horizon and risk appetite. Stocks and bonds complement each other.
If you're new to investing first look at the risk appetite, needs and time horizon of investments to determine where you should put your money. An excellent opportunity that you read more about stocks, mutual funds and bonds in following articles.