Investing 1.0

The Numbers

  • About 52% of Americans do not own stock.
  • Stock market average annual returns is between 8% and 12%.
  • The S&P 500 Index is up ~40% from October 2012.

The Basics

Stock (Equity) Market: where shares of a corporation are issued and traded. The stock market allows stockholders, or shareholders, to participate in a company’s growth. Stocks are traded through a stock exchange; the two American stock exchanges are the New York Stock Exchange (NYSE) and the National Associations of Securities Dealers Automated Quotations (NASDAQ).

Bond (Debt) Market: facilitates the transfer of capital from savers to the issuers for needed capital to fund government projects, business expansions, and ongoing operations. There is no central place that bonds are traded.

Commodities Market:  selling and buying raw or primary goods. There are two types, hard and soft. Hard commodities include gold, silver, rubber, oil, etc. Soft commodities include corn, wheat, coffee, sugar, soybeans, pork, etc. Commodities are traded through future exchanges; the two largest American future exchanges are the Chicago Board of Trade (CBOT) and the Chicago Mercantile Exchange (CME).  Commodities are highly volatile investments.

If people or organizations want to buy and sell something, then there’s a market for it. Stocks and bonds are the most common investments, but there are other investment markets.

To-Do’s

Consider opening an IRA or Brokerage account and start investing! The best way to learn how to invest is to  1) open an account, 2) utilize the tools to analyze stocks and bonds, and 3) buy something.

Some great IRA and brokerage options are Charles Schwab, eTrade, Fidelity, MerrillEdge (owned by Bank of America),  Scottrade, and TD Ameritrade. Each online broker platform will allow you to open an account, often for $500 or more, and will provide the resources to do research on investment opportunities.

I will cover more on investments over the next few months. The general idea is you want good stocks and bonds that have a proven record of gains for at least 3 years. The longer the track record, the better.

Measuring Your Improvement

The markets often scare people away, with all of the numbers, arrows, and colorful charts. For investing, measuring your success is relatively easy. Is your stock making money? If not, do you believe that your stock will make money in the future? If you believe your stock will make money, then what are the drivers of growth?  New products and services being launched, new management, merging with competition, cheaper prices, and higher quality products or services are a few types of drivers of growth. Also, look at similar stocks to the one you own. For example, if you own shares of Apple (Ticker: AAPL) stock, then compare the performance, or returns, with peer technology companies, like Google (GOOG), Microsoft (MSFT), and Netflix (NFLX).