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07 Oct 2015

Bonds and stocks

Why does investing seem so complicated?
The number of ways you can invest is mind-boggling. The worst part is always that investment world runs on the different terminology. If you're new to investing it certainly won't be long before you encounter words like accretion, moving averages,amortization,average weighted price, open interest, futures and option, book closure etc. I want to stop before I put you to sleep. All you actually want to do is to place your money in something where it'll be safe and grow. Is always that too much to ask for? okpay hyip

What makes there so many different investing alternatives?
Is he really different! If you've been to a food store you will see boxes of different detergents, most of which will likely be labeled new! Improved! or even better New and Improved! But whatever they call it, when its all said and done these boxes are filled up with nothing more than SOAP, comparable to they have always been.
Investments aren't any different. At first glance it might 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 certainly not more than just an old way of investing in a new box.
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Understanding committing to simple terms:
In a family tree you will have a male and a female at the surface of the list from where the rest of the branches came out. Similarly in investments towards the top you have stock and bond. All other forms of investments are some form or other present in. And their differences could be spotted just as easily as possible distinguish a man from your woman.

What are stocks and bonds 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 for the family car; nothing much to think about, slow, always takes you where you are going, ever present for you.

Some basic traits present in:
People investing in stocks need to see a return on their money, bond holders intend to make sure the return of these money.
Stocks are about 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. Therefore we can say one is an ownership investment and yet another is a loan investment.
The gap between an ownership investment and a loan investment just isn't too hard to understand. The differences are obvious once you know what to look for.
An ownership investment won't have an ending date. (When you buy a stock it never becomes due, you have to sell it to get cash)
Loan investments almost always have a due date (e.g. your fixed deposits using the bank)
Ownership investments rarely promise a specific return. A stock price can go up 10 times or remain static for years.
Loan investments nearly always promise a fixed return. A couple of months deposit certificate promises 4% return.

Third major distinction is if you will get your money back.
In ownership investment there may be no such guaranty. A stock's price can go to zero.
The loan investments usually are backed by the guaranty from the bank or the government.
Using the above distinctions in your thoughts try to figure out what you happen to be invested in.
Few examples: your bank 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 cannot keep pace with inflation, you might have your money safe however the purchasing power falls. Too much risk avoidance can result in less return. Similarly Ownership investments can give you without a penny in your pocket. Idea is to keep a balance forwards and backwards. Neither is in a category of 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. Bonds and stocks complement each other.

In case you are new to investing first look at your risk appetite, needs and time horizon of investments to choose where you should put your money. I recommend that you read more about stocks, mutual funds and bonds in following articles.


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