| Investing is all about making your money work | | | | getting 3% interest, and put $100 into it, at the |
| for you. The goal is to put your money in a | | | | end of one year, you get $103. Interest and |
| vehicle with a positive rate of return, which is | | | | return rates compound if you let them sit long |
| usually, but not always, expressed as a rate of | | | | enough for example, if you let that $103 remain in |
| interest. There are a number of different | | | | the account, on the next year, it'd grow to |
| investment vehicles, suited to different goals. | | | | $106.09 in the second year, assuming all other |
| We're going to cover a series of traits related to | | | | variables remained the same. |
| all investments, and contrast the two most | | | | Second, there's volatility. Volatility is how rapidly a |
| common investment vehicles, stocks versus bond. | | | | security changes price, highly volatile securities can |
| Stocks are shares of a company, either publicly | | | | change price (up or down) very rapidly. It's |
| or privately traded, think of them as a small | | | | possible to make a lot of money doing high |
| percentage of ownership in the business. As a | | | | volatility securities trading, or day trading. It's also |
| stockholder, you have some voting obligations for | | | | possible to lose a lot of money doing it. In general, |
| selecting officers of the company, and you'll get | | | | stocks are more volatile than bonds in the US |
| paid a share of the quarterly profits (called a | | | | market. |
| dividend). | | | | The things that will send stock prices plummeting |
| Bonds are lending money to a company or the | | | | will bring the prices of bonds up, so it's always |
| government, in return for a promise of more | | | | worthwhile to have a mixture of both in your |
| money when the debt is paid back; bond rates | | | | portfolio. Over the long haul, stocks perform well, |
| are typically in the realm of 2 to 5% APY, and | | | | and penny stocks (stocks of new companies just |
| can be held for varying lengths of time. There are | | | | starting out, selling for under a dollar per share) |
| products called bond funds that buy a portfolio of | | | | can yield enormous returns on stock pricing, and |
| bonds so that you have some liquidity, and there | | | | can double, triple, or more in the course of days. |
| are bond futures markets that take this even | | | | As your investments move from wealth |
| further. | | | | generation to wealth preservation, and income |
| Both stocks and bonds are called securities. Now, | | | | production, you'll want to shift your picks from |
| on to some investment terminology. | | | | highly volatile stocks to more secure bonds, |
| First, there's the rate of return. This is the | | | | particularly as you approach retirement. |
| percentage of the original purchase price you get | | | | So the question isn't "Which are better, stocks or |
| as a return on the investment each year. For | | | | bonds?" it's more a case of "What percentage do |
| example, if you're holding a savings account | | | | I allocate to each? |