Friday, April 30, 2010

The Way Stock Market Works With Stocks


The stock market is a place which facilitates the exchange of goods between interested parties. Exchange of stocks start when a company (a corporation at that because single proprietorship or partnership business are not allowed), wants more money for its business. It has to get money somewhere and the option is to borrow money or sell stocks. Borrowing money shall put it to debt so it could choose to sell stocks. Selling stocks means it sells part ownership of its company. Stock owners long ago realized that it would be more convenient if there were a common place where they could go to trade (or buy and sell) stocks with one another. So, the stock exchange was born. From this stock exchange, grew today’s stock market.

Trading of stocks

Selling and buying of stock works this way. Let’s just say, you open an account with Trade E. You send Trade E a check of $1k. Trade E deposits the check into a trading account that is listed in your name. You log onto Trade E and place an order to buy 100 shares of a stock in Company A, which is trading at $5. Trade E now tells its network that there is a demand of 100 shares of Company A. If one of his networks finds someone who is willing to sell 100 shares of Company A, they execute the trading of stock between you and the person selling the shares. The stock market trade information is brought to a clearinghouse where the information is processed and the shares will now be registered to you. The clearinghouse will designate 100 shares of Company A to Trade E and Trade E will designate those 100 shares or stocks as yours.

Public market

The stock market works depending on its organization and government regulation. There are stock exchange corporations which are non-profits. There are also for-profit businesses. These for-profit companies earn money by providing trading services. When a company goes public, it has the opportunity for additional funds since investors can purchase its shares. But it is exposed to stricter regulatory control by government regulators. When a company goes public or wants to participate in stock market by selling stocks for the first time, it has to file necessary paper works with the government and the exchange it has chosen, it makes an Initial Public Offering (IPO). The company will decide how many shares to issue on the public market and the price it wants to sell them for.

Mutual Funds - An Effective Investment Scheme


A mutual fund is a pool of money from various investors which are managed professionally by a fund manager for the purpose of trading or investing the money regularly and distribute the profit or loss to the investors. Mutual funds are one of the investment portfolios of the financial industry. The banking industry invests hugely to mutual funds. Knowing about mutual funds is a good advantage for anyone who wants to build a solid financial future. Investing in mutual funds means purchasing shares and ideally accumulating it to one’s advantage. It is just like buying a lot in square meters at a price, and when the lot price increases, you may sell the lot to gain profit. When the price goes down, you may defer selling it. In mutual funds, you buy shares at a price, then redeem (or withdraw) it when the price per share goes up. That is investment.

Types of mutual funds

There are mutual funds which are aggressive, some are conservative and others are balanced. Aggressive types include equity funds, stocks, etc. These are the funds which go up very fast, and go down very fast too. Conservative funds are those that go up very slowly, but not fast in going down. Examples are the bond fund, government securities and treasury bills. Balanced funds are the combination of both aggressive and conservative. Which fund to choose, depends on what kind of an investor you are.

We can minimize the fear of risk in investing in mutual funds if you know exactly its nature and trends. Enough knowledge of the investment portfolio always clears doubts and lowers the risk. Even aggressive funds can work to your advantage if you strategize on making the most of it. One of the most effective way to invest is buying shares in regular basis. Regardless of what price the shares are. The purpose of this is simply to accumulate the number of share. Given enough time, profit gained can be very high upon redemption.

Accumulate Money For Retirement

Becoming an expert in mutual funds is a great advantage. It can help maximize even a small amount of money to become big. It is worth studying and knowing. The good thing about mutual funds is that people of all ages – young and old alike can participate in the investment.

Investment - Saving and Growing of Money

Savings is good and investment is better. Both are aimed to handle your money to maximize its capability and potential to grow. Investing is to grow money faster than savings. It is usually into buying and selling. We invest by buying an item, a property, a share or a stock so we can sell them and gain profit from the transaction.

Where should we invest?

Some people seek the advice of bank managers, financial brokers or financial consultants where to invest their money. These financial industry experts would most likely guide you to the financial institution that generally requires investment in long-term. Like savings, investment also is better when given enough time to grow. It requires close monitoring though than just saving your money in the bank.

How much should our target savings amount be?

We put up an investment because we want to accumulate our money and build wealth for us and for our family. How much then should our target wealth be? When should we stop accumulating savings?

As long as we have income, we should not stop saving. As long as we still can work, we should still save. We need to build wealth because we want to stop working in the future. Wealth accumulated shall provide us income when we stop working. The more it is much needed when you get sick or disabled. Instead of we working to earn, the yields of our accumulated wealth or the returns of our investment will serve as our income when that happens.

What if you cannot save?

Currently having an income that is not even enough to make ends meet, and much more to save is not an excuse. Savings supposedly do not have exemptions. You might not be able to save now, but it does not mean you are not going to send your children to school. Presently having no money for savings or investment, does not mean you are exempted from growing old and going into retirement. In the race of life, being responsible is to sustain your family now, and continue sustaining yourself and family in the future.

Set long-term financial goals and decide how much and where you should put your investment. If your income is not enough for savings, find ways to earn other income by using your spare time. It is better to have more than one source of income while you are younger than doing it when you are older and more likely already weak to make it happen. No matter how small you can start with savings, it is important that you already have started. Research for advice and find a financial advisor to guide you to where should your money be invested. The more you will know about it, the lesser the risk because higher financial knowledge lessens the fear of risks.