The Facts on Investing

Investing is the general term for placing money, or assets, in a fund, or program, in order to realize a return. Investing is a very broad term and can include stocks, bonds, real estate, mutual funds, and a number of others. When you are considering entering into the investment market it may seem complex and; to an unskilled, or novice, investor, be a form of gambling.

Stocks are essentially part ownership in a company. The company can be either privately or publicly owned and is a great investment for those who are skilled in investing. Stock takes on many different forms and some include voting rights while others include dividends and other perks. When you invest in a stock your value in the stock will increase or decrease depending on the fluctuations of the companies value. Investing in stocks can be somewhat risky. You have many options when doing so. You can go to a skilled traditional broker who will be a “mentor” in guiding you along your investment strategy. These, however, are expensive. You can also use discount brokers, often through online resources, to invest directly. They are inexpensive but give no real advice and is more of a “do it yourself” form of investing.

A bond is different from a stock in that a bond gives the investor no ownership in the company. A bond acts more like a debt owed than anything else. When a company, or government entity needs to raise capital they will often sell bonds to investors. The bond allows for the company, or government, to raise money with the requirement that they pay the investor interest that will accumulate over the period of the bond. A bond can be short term or long term and the return on the investment, unlike stocks which can be risky, is relatively fixed and is a great form of long term, stable investing. Investing in government issued bonds are one of, if not the most, stable forms of investing and you will be virtually guaranteed to benefit. The disadvantage of bonds is that the rate of return is low, usually around 5% of the initial investment.

A mutual fund is the pooling of money into an investment fund that focuses on investing in certain stocks, bonds, and commodities. Mutual funds, unlike stocks and bonds, are not directly purchased by the investor. In a mutual fund the investor will give capital to a mutual fund. The fund manager will then take all the pooled money from all the investors and purchase stocks, bonds, commodities, etc. that are in line with the mutual funds investment strategy. You can get involved with mutual funds that focus primarily on energy stocks, entertainment stocks, or a number of other specialized industries. Mutual funds are often the easiest and most stable forms of investing because you are taking all the decision making out of your own hands and entrusting a specialist to diversify and invest.

Another form of investing is in Real Estate. Real estate investing, unlike in the past, is now considered very specific and there is a high risk of loss associated with it. Because of the housing crisis and the great recession, housing prices are at their lowest levels in 31 years and you can often get a 30 year mortgage for around 4% annual interest. The advantages of investing in real estate is that housing is normally a stable investment and it can be done individually or with others in the form of joint tenancies and tenancies in common. The disadvantages associated with real estate investment is that you risk losing the value in your property yet still have to make mortgage payments. Your investment is based on the idea that when you sell the property you will recoup, not only the price you paid, but the interest and still come out with a significant gain. Disadvantages may include that the selling of real estate will be subject to capital gains as well as property taxes and compliance with municipal, state, and federal laws when it comes to landlord/tenants.

When you are investing in real estate you will want to do your research. Look at the community that you will be investing in. Is it a growing community, is their easy access to urban/business districts, what is the condition of the property, are there liens or covenants involved. Because investing in real estate is such an expensive endeavor you may also want to discuss pooling assets with other for joint ventures.

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