« The 5 Tips Series by Gerri Willis | Main | I Hate Infomercials! »
Day 4 – Basics of Investing
By JLP | February 3, 2006
Welcome to Day 4 of 24 Days to Better Finances. Today we are going to talk about the basics of investing. This is a rather broad topic so over the next few days we will be discussing the different aspects of investing in stocks, mutual funds, and bonds. Today will serve as an overview.
My American Heritage College Dictionary defines “invest” as: “to commit money or capital in order to gain a financial return.” In other words, you take something you own and use it to make more money. There are all sorts of endeavors to “invest” your money in: stocks, bonds, mutual funds, real estate, precious metals, timber, franchises, commodities, coins,… Investing is what makes the world go round. For the purposes of this post, we will concentrate on stocks and bonds.
I don’t want to give too much away since we will be covering this topic more in depth over the next few days. However, I will say that a share of stock represents ownership in a business and a bond represents a loan to a business. When you buy a share of stock, you are buying the right to portion of the company’s future earnings. When you buy a bond, you are loaning a company money which they will pay back with interest in the form of a coupon payment (more on this later).
In general bonds are considered less “risky” than stocks because if a company were to go bankrupt, the bondholders have a better chance of recovering their money since bondholders are paid before stockholders. Therefore, it is recommended by most people that you have a portion of your money in stocks and a portion in bonds, which is called asset allocation (more on this in the near future).
That’s about as basic as I can get without risking being redundant since we will be discussing investing in stocks, bonds, and mutual funds over the next several days. In the meantime, you might want to check out these posts that were submitted by my blogger friends:
Money and Investing:
FatPitchFinancials:
30 Days to Becoming a Better Investor
FiveCentNickel:
Stocks and Bonds vs. Mutual Funds
Experiments in Polyglot Blogging:
Compound Annual Growth Rate (CAGR)
Compound Annual Growth Rate Calculator
Canadian Financial Stuff:
MyMoneyBlog:
Pop Quiz: Test Your Investment Knowledge
FreeMoneyFinance:
Insurance and Investing: Buy Term and Invest the Difference
4 Habits of Successful Investors
Where the Pros Stash Their Own Dough
Stress-Free Investing in Four Easy Steps
Investment Advice from Someone Who Manages Billions
Political Calculations:
Topics: Investing | 1 Comment »
February 4th, 2006 at 12:46 am
24 Days to Better Finances
Day 3 and Day 4 are now up in my blogging marathon called 24 Days to Better Finances. So far we have discussed: Day 1 – Setting Priorities Day 2 – Making a Budget Day 3 – Basics of Banking…