Investing 101
GreatX
Co-Founder
- Location: USA
To get kickstarted on the next generation of wealth creation and financial planning, start investing today. In crafting an investment portfolio, it is important to be savvy to the different strategies and investment options you are including. You must allocate your investment between different assets, with stocks and bonds being the most fundamental. It is important to note that stock and bond behaviors, returns, and risks are quite different. Stocks allow you to partially own a corporation, while bonds allow you to give a small loan to a company or the government. The two differ significantly in how they generate a profit.
Stocks generate a profit by appreciating in value and eventually being sold on the stock market. This is where the concept of buying low and selling high originates. Companies may also pay dividends, which is when a company shares a portion of its profits with its stockholders. Most bonds, on the other hand, pay a fixed interest rate over time. Instead of getting money from a bank, companies can get money from investors who buy their bonds. In exchange for the capital an investor loans a company, the company pays an interest coupon.
Bonds are usually seen as safer investments than stocks because bondholders are likely to receive their initial investment back once the bond matures. When a company issues stocks to investors, however, investors only obtain ownership rights in the company, but the company doesn’t promise to repay the funds invested. Your decision of how to allocate your capital among different investments, beyond just stocks and bonds, depends on your personal risk tolerance, which differs for each individual. You must also take into account your financial goals and investment horizon.
A powerful tool new investors can take advantage of when making investment decisions is compound interest, which occurs when interest gets added to the principal amount they invested. Over time, the interest rate applies to the new and larger principal amount that accounts for the accrued interest that is now a part of the principal (interest on interest). Compounding works to your advantage as your investments grow over time, but works against you if you are paying off your debts.
Investing may also help you outpace inflation. Inflation is the rise in the price of goods and services resulting in a drop in purchasing power over a period of time. If your money is sitting in an account not earning interest, but the value of the money itself is going down, you are essentially losing money every day. In order to grow your money in the long run, you will need to earn a return that exceeds the rate of inflation ( after-tax).
These factors, as well as your budget, financial goals, investment objectives, and time horizon, are the key to building a successful investment strategy. You must also take into account that these factors can and likely will change over time, but the best thing you can do is start crafting your portfolio today.
Disclaimer
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. GreatX disclaims any obligation to update or revise any statements or views expressed herein.
In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. GreatX and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and GreatX and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
Stocks generate a profit by appreciating in value and eventually being sold on the stock market. This is where the concept of buying low and selling high originates. Companies may also pay dividends, which is when a company shares a portion of its profits with its stockholders. Most bonds, on the other hand, pay a fixed interest rate over time. Instead of getting money from a bank, companies can get money from investors who buy their bonds. In exchange for the capital an investor loans a company, the company pays an interest coupon.
Bonds are usually seen as safer investments than stocks because bondholders are likely to receive their initial investment back once the bond matures. When a company issues stocks to investors, however, investors only obtain ownership rights in the company, but the company doesn’t promise to repay the funds invested. Your decision of how to allocate your capital among different investments, beyond just stocks and bonds, depends on your personal risk tolerance, which differs for each individual. You must also take into account your financial goals and investment horizon.
A powerful tool new investors can take advantage of when making investment decisions is compound interest, which occurs when interest gets added to the principal amount they invested. Over time, the interest rate applies to the new and larger principal amount that accounts for the accrued interest that is now a part of the principal (interest on interest). Compounding works to your advantage as your investments grow over time, but works against you if you are paying off your debts.
Investing may also help you outpace inflation. Inflation is the rise in the price of goods and services resulting in a drop in purchasing power over a period of time. If your money is sitting in an account not earning interest, but the value of the money itself is going down, you are essentially losing money every day. In order to grow your money in the long run, you will need to earn a return that exceeds the rate of inflation ( after-tax).
These factors, as well as your budget, financial goals, investment objectives, and time horizon, are the key to building a successful investment strategy. You must also take into account that these factors can and likely will change over time, but the best thing you can do is start crafting your portfolio today.
Disclaimer
This commentary is provided as general information only and is in no way intended as investment advice, investment research, a research report or a recommendation. Any decision to invest or take any other action with respect to the securities discussed in this commentary may involve risks not discussed herein and such decisions should not be based solely on the information contained in this document.
Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed herein are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. GreatX disclaims any obligation to update or revise any statements or views expressed herein.
In considering any performance information included in this commentary, it should be noted that past performance is not a guarantee of future results and there can be no assurance that future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which information, although believed to be accurate, has not been independently verified. GreatX and/or certain of its affiliates and/or clients hold and may, in the future, hold a financial interest in securities that are the same as or substantially similar to the securities discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and GreatX and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities. This commentary has not been reviewed or approved by any regulatory authority and has been prepared without regard to the individual financial circumstances or objectives of persons who may receive it. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
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GreatX
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