Investing
Making money work for you
Investing is using money with the expectation it will make a profit. 76% of millionaires say smart investments are the reason they are financially successful. Not all investments are insured and there is no guarantee that you will make a profit, making it crucial to follow some of the following tips.
Studying stocks before buying
Do your own homework and know what you are buying. Study company data and news to answer these questions:
What is the current “state of affairs”?
Are there any “red flags” that indicate the company has issues?
Does the company have a record of consistent growth?
(earnings per share, revenue, dividends)
Is the company making money?
Can the company cover its debt?
How does the company compare with competitors?
How does the company compare with industry trends?
How does the current price compare with recent trends?
Diversify to Tame Risk
Don’t put all your eggs in one basket.
Invest in a combination of asset categories:
More than one asset (Example: not all Facebook stock)
Variety of assets (Example: not all CDs)
Mix investments within an asset category:
Different industries (Example: not all retail)
Different-sized companies (Example: not all small)
Divide investments among several “baskets”
Definitions
Risk - uncertainty of achieving a desired result
Asset - something of value that can be turned into cash (Examples: stock, home, lake-front property, business)
Liability - something owed to another person (Examples: loan, rent)
Rate of Return - degree to which an asset gains (or loses) value over a given period of time (Examples: APY interest on savings, stock value increase/decrease)
Other forms of investing
Interest-earning savings options
Bank or credit union
Savings account
Money market account
Certificate of deposit
US treasury bond
Time value of money — growing income over time
Dividends
Share of profits companies pay shareholders
Businesses sell shares of stock to raise money to run the business.
Someone who buys stock owns a portion of a business, depending upon how many shares are bought.
A shareholder doesn’t take on responsibilities of running the company, but a company employee might happen to be a shareholder.
A shareholder is allowed one vote per share when electing board members at shareholder meetings.
Company management might decide to share part of the profits by paying dividends to shareholders (cash or shares of stock).
The price of stock shares varies based on what people are willing to pay.