Investing 101 Series – Part 2: Investment Basics
The basics of investments take many forms. It is like trying to learn algebra or advanced trigonometry without knowing the arithmetic tables. The basics or equivalent of the arithmetic tables are not complicated but critical to investing. You could be the best carpenter in the world but you need the proper tools or your skills and experience is wasted.
Here are some of the most important basic tools of investing:
Stocks – represent ownership in a Company
Bonds – represent debt of the Company which you can own
These are the two most basic concepts of investing. They take on great meaning when coupled with the liquidity associated with either one of them. The United States has grown to be the industrial giant it is because of the liquidity associated with ownership in stocks or bonds. Companies were able to fuel their success and raise money because the public could own a piece of the company through stock ownership and if they needed the money at any time there was an instant market to liquidate the stock and convert it back to money. This is what allowed Companies to grow as fast as possible. People could invest and grow their money through their investment in a good company.
Same can be said for loaning a company money by purchasing their bonds at a stated yield for a stated length of time. If they needed their money back, they could sell their bonds on an exchange and receive back their investment.
The ability to be able to invest and stay for the long term or react to a person’s needs is the secret to the growth of great ideas and fuels companies.
There are many different kinds of stocks as there are many different kinds of bonds but none of those details and specifics are a factor in finding good solid investments. They are there to keep lawyers busy and provide accounting and tax nuances
One form of investment that is worth discussing as it provides leverage and your ability to maximize your investment is “options”.
Options simply stated is the right to buy a stock at a stated price for a stated period. As in all basics for the investment world to be successful there are liquid markets in all options readily available for quotes and trading of all major Companies.
The use of options allows more leverage but introduces a few more variables that require more attention. Although if you like the fundamentals of the Company there are longer term options that give you more time for the Company to mature and leverage the funds invested.
Learn more about Investments here:
MD Financial Solutions
