The three fundamental tools for investing
Investing is not a get rich quick scheme.Smart investors take a long term view,putting money into investments regularly and keeping it invested for 5,10,15,20 or more years.All in all there are three fundamental tools for investing and they are Stocks,Bonds and Mutual funds.
Wise Investment, Plenty returns
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Share of stock may be acquired on an organised exchange such as in the London stock exchange and New York stock exchange,through a stock-broker, over the counter or by direct purchase in some cases.When you buy stock, you become part owner of the company and are known as a stock holder or shareholder.Stockholders can make money in two ways--receiving dividend and selling stock that has appreciated.A dividend is an income distribution by a corporation to its shareholders,usually made annually.
There is no guarantee you will make money as a stockholder.In purchasing shares of stock, you take a risk on the company making a profit and paying a dividend or seeing the value of its stock go up.So before investing in a company ,learn about it's past financial performance,management, products, and how the stock has been valued in the past.And lastly learn from what the experts says about the company and the relationship of its financial performance and stock price.Successful investors like Warren Buffet are well informed but you can still take solace in the fact that Rome is never built in a day with time you will reach the promised land.
When you buy bonds, you are lending money to a federal or state agency or other issuer,such as a corporation.A bond is like an I O U.The issuer promises to pay a stated rate of interest during the life of the bond and repay the entire face value when the bond comes due, or reaches maturity.The interest a bond pays is based primarily on the credit quality of the issuer and the current interest rates.With corporate bonds, the company's bond rating is based on its financial picture.Issuer with greatest likelihood of paying back the money have the highest ratings, and their bonds will pay an investor a lower interest rate.Remember the lower the risk the lower the expected returns.
A bond may be sold at face value(called par) or at a premium or discount.For example, when prevailing interest rates are lower than the bond's stated rate, the selling price of the bond rises above its face value.It is sold at a premium.Conversely, when prevailing interest rates are higher than the bond's stated rate, the selling price of the bond is discounted below the face value.When bonds are purchased, they may be held to maturity or traded.
Mutual funds:Investing in many companies
Mutual funds are established to invest many people's money in many firms.When you buy mutual fund shares, you become a shareholder of a fund that has invested in many other companies.By diversifying , a mutual fund spread the risk across numerous companies rather than relying on just one to perform well.Mutual funds have varying degrees of risk.They also have cost associated with owning them, such as management fees that will vary depending on the fund makes.
Before investing in a mutual fund, learn about its past performance,the companies it invest in, how it is managed and the fees the investors are charged.And lastly learn what the experts say about the the fund and its competitors.
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