Stocks

Stocks are equity investments. By purchasing stock in a corporation, you become part owner in the company, called a stockholder. You have the right to vote in the company because you are a stockholder. You can earn money two ways with stocks. Capital gains are earned when the value of the stock increases. If you buy stock A at $10 and then sell Stock A at $13, you make $3.

Many corporations also pay dividends to their stockholders. This is often done on a quarterly basis. For example, Company B might pay $.25 per share you own per quarter. If you own 100 shares, you will be paid $25 every 3 months for a total of $100 a year. Corporations are not required to pay dividends. Usually, stronger and more established companies pay dividends consistently and new companies wait for growth.

Bonds

Unlike stocks, bonds are a debt investments. You do not own any part of a company if you buy bonds. You can buy corporate bonds or government bonds. When you purchase a bond, you are basically lending money to the entity you are purchasing from. You will be repaid that amount plus interest at the maturity date. For example, if you buy a bond for $1,000 and an interest rate of 4% is agreed to be paid each year with a maturity time of 5 years, you will earn $40 per year for a total of $200. After 5 years, you’ll be paid $1,200. The terms of the bond will vary.

Mutual Funds

Mutual funds are pooled investments. Many investors bring their money together to have a larger sum to invest in many different securities. This allows each investor to invested in a wide variety of investments. This is popular because it means the investors don’t have to research each investment and they get a well-diversified investment. Mutual fund securities can include stocks, bonds, commodities, or a combination of any kind of securities.

Savings Accounts

If you are very risk-averse and worry about losing your money, you can always keep cash in a savings account. This isn’t exactly an investment, but most will pay a small amount of interest. Of course, if you want to invest and earn money, I strongly suggest looking into any of the previous types of investments to earn more on your money.

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After I had a few mutual funds setup I started to notice that performance of some of them was quite sporadic. I remember thinking how people had told me this was a safer way to invest. Not from what I could see! I started to research dividend paying stocks and the topic further and that’s when I found out about balanced mutual funds and how they offer a safer way to invest. After the economic downturn in 2008 I had a serious look at my portfolio. Some of which had been hit pretty hard. From that day on I swore to take a much more cautious approach to my investing life. My motto now is very much safety first.

Balanced mutual funds are safer for various reasons. One of the biggest mistakes investors make is to have all their eggs in one basket. You should never have the majority of your holdings invested into one company and if you can spread across different commodities too. Balanced mutual funds take this approach by putting a cap on the amount invested in any one asset. The money is also spread across different markets so you could end up with bonds as well as stocks as part of your portfolio.

In short, check out balanced mutual funds as they are becoming the safest way for anyone to invest in the stock market. If you’re looking to reduce your financial risks then this is the way to do it. It can be a very successful way to make money when used along with buying stocks that pay dividends.

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The naked reality is that only a small portion of trained and savvy investors rake in disproportionate big amount of return, many times at the expense of the other investors. But these few people know how to make money in the stock market. Is it not a disparagement to “Wall Street expert” professional title when a number of these so called “expert pretenders did not make a killing nor even achieved a breakeven in the investment.

You Need an Investment Strategy

A lot of investment strategies like the growth stocks investing are reputed to be risky. Momentum investing or day trading strategies are typically recognized to be very risky endeavors that can dissipate life long savings over night.

Indeed there is no such thing as free lunch. While those riskier strategies can yield high gains in relative short term, however in the long run, a risky method is in all likelihood to make a lot of individuals poorer rather than richer. Gigantic short term gain is not the way on how to make money in the stock market. It is simply a dangerous stock market bait to entice the inexperienced investor into the market. Desiring for that quick satisfaction of big short term gain overnight via speculation is just an ideal ingredient for a disaster ahead.

Value mutual funds are generally reputed to have lesser unpredictability as opposed to growth mutual funds. A lot of industry and academic research have revealed that value stocks as a group did so much better in fact far better as compared to growth stocks in bear market. A lot of technology and internet now tagged as “growth stocks” lost 90% to 99% of value in just a short period of time after 2000 while a host of value stocks soar during the same period of time. Indeed, investment in value mutual funds is the way on how to make money in the stock market.

Truth to tell, the single most significant element to achieve high investment performance in the long run is to keep margin of safety of an investment portfolio. No less than the financial guru Warren Buffet once quote

Rule No.1: Never lose money.

Rule No.2: Never forget rule No.1.

This financial dictum should guide investors so they can rake in more profit.

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