Welcome to the latest series at JosephSangl.com – “Investing Fundamentals” Investing is consistently rated by our audience as one of the most confusing topics they face. In this series, we are going to share some foundational principles that can really help you understand investing better!
Five Practical opportunities for Investing
Stocks When you own stock in a company you technically become a part owner of that company. You have some claim to the assets and earnings of the company. Stocks are foundational to most investment portfolios. They are known to be very volatile in the short term but have historically outperformed other investments in the long run.
Mark Twain has famously said this about investing in stocks:
“October: This is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February.”
There are two major different types of stocks
- Common Stock Common stock allows the holder to vote in shareholder meetings, depending on the amount of stock owned, and provides access to dividends (profit sharing) produced by the company.
- Preferred Stock Preferred stock holders are a step above common stock holders because they have priority over common stock holders. This applies in many areas including when dividends are being paid to shareholders.
Bonds A bond is generally less risky. A bond is a large debt owed by a company, government, or even a school, where the borrowing institution has agreed to repay an established amount of interest payments for a set period of time. When this time expires, the borrower then returns all of the principal back to the lender(s). Bonds can vary in maturity times anywhere from 1 year to 30 years (or more)! The longer the time, the more interest you could accumulate.
I like to think of my personal residence as a bond investment.
Mutual Funds & Exchange Traded Funds (ETFs) Mutual funds and ETFs let you accumulate a wide variety of investments you couldn’t normally obtain without consuming large amounts of time and money. Mutual funds and ETFs are funded “mutually” by you, me and millions of our closest friends. Our money is pooled together and then used by the “mutual fund managers” to invest in hundreds of other company stocks, bonds, and other sorts of investments. Usually mutual funds and ETFs have specific charters that direct their investments. One mutual fund might only focus on established companies in the United States while another could focus on investing in up-and-coming companies in third world countries.
Other Investing Opportunities People so often hold themselves to these common types of investing and never branch out. Investing opportunities are all around you! You can invest in a small home and rent it out. You could invest in small businesses in your community. When you are investing you can think outside the box. Some of the greatest returns can be found when investing in unorthodox ventures.
STEPS TO TAKE:
- Review your investments and know what you are invested in.
- Start to think OUTSIDE of the stock market when you are investing!
- Start investing!
NOTE: This post contributed by IWBNIN intern – Craig Fatt