Stock Markets Exposed
HELP!! I feel dumb... tell me about the stock market & investing!! =[?
OK... so my mom is getting really into the stock market and investing... and i'm realizing i have no idea what she's talking about. If anyone could just lay out the basics for me that would be great... you know like what are: stocks, bonds, mutual funds, highs & lows, lots, IRA's... ugh I feel so lost!! I am really interested in learning more about it... I'm still young enough that I could really benefit from it... Any info would be great, thanks! =] ~Megg
Public Comments
- I am not being mean. Go buy Investing for Dummies. There is a lot to learn about the markets and investing. It will explain it you in easier terms, its great for normal people that want to educated themselves.
- Read "The Truth About Money" by Ric Edelman Very fun and easy to read.
- Read a good book about it. There are plenty. Here are the basics. Stocks represent an ownership interest in a company. Owning a stock generally gives you a right to vote for the directors of the company and the right to receive dividends (cash or more shares of stock) if and only if the directors vote to declare them. Bonds are debt that the company has issued, basically borrowed from the holders of the bonds. As a holder of a bond, you usually get paid interest at a stated rate until the bond matures and is paid off. You are essentially a creditor of the company and if the company is liquidated (meaning its assets are sold), you would get paid off before the company's stockholders. All corporations issue stock to their owners. When companies get really large, they can issue or sell additional stock in what's called an initial public offering and then list that stock for trading on the securities exchanges, like the New York Stock Exchange and NASDAQ. Companies sell stock to the public in order to raise additional money to run their business. They can also borrow money from banks or by issuing bonds. When stock is listed for trading on the stock exchanges, people can buy and sell the stock. The price of the stock goes up and down according to the supply and demand of the stock and whether people think that the company will do well in business and that it's profits will increase. Each day the price can move, establishing high and low prices for the day (and the year). The price at which the stock first trades each day is the opening price and the last trade is the closing price for the day. A round lot of shares means 100 shares. You can buy 1 share or as many as you want. Mutual funds are pools of investments run by mutual fund managers who are experts in evaluating the investment prospects of stocks and bonds. Investors buy shares of a mutual fund. The manager of that mutual fund then takes that money and buys many stocks and/or bonds for the benefit of the investors in the mutual fund. The investors pay the manager a yearly fee to manage this fund. There are also other fees and expenses to buy shares in a mutual fund. Investing in mutual funds allows you to participate in the ownership of more companies than you could for the same money if you invested in a single stock, thereby diversifying your risk (in other words, your eggs are not just in one basket). IRAs and 401k plans are specific tax advantaged retirement plans that allow individuals to invest money (either in stocks or in mutual funds) with certain tax advantages. Money invested in these plans is generally not taxed when you put the money in and any investment gains or dividends are not taxed. This allows the money in these plans to be reinvested and grow faster than it would if you had to pay taxes on it each year. When you retire, you are then taxed on the money that you withdraw. When you reach age 70 1/2, you must start withdrawing a certain percentage of your retirement plan. Investing is the best way to accumulate savings and funds for your retirement. This is because the rates that you can earn on investing in companies are usually greater than the amount you can earn by putting your money in the bank. Bank interest is particularly low right now and the interest you earn is fully taxable (if it's not in a retirement plan/IRA) at income tax rates that are much higher than the tax rates on dividends and capital gains (a capital gain is when you buy a stock or mutual fund at one price and sell it for a higher price). Stocks can lead to greater returns over time because they are riskier than putting your money in the bank. Money in the bank must be repaid to you and is insured by the FDIC. Money invested in stocks can be completely lost if the company goes bankrupt or if it never lives up to its promise. Before investing in any investment, you need to know what you are doing and how much it is costing. You should also have adequate savings (in a bank, even though the return is lower than stocks). Good luck.
