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Budget Stretcher Articles Beginning Investing With Stocks and Mutual Funds First for the most Important Definitions: Stocks~ Shareholder-The owner of one or more shares of a corporation´s stock Ticker Symbol-Letters that identify a security for trading purposes on the consolidated tape that crosses a television or computer screen-such as GE, for “General Electric.” Exchanges-The two major exchanges in which stocks are traded (bought and sold) in the U.S.-the NYSE, or “New York Stock Exchange”; and the AMEX, or “American Stock Exchange.” Annual Report-A booklet sent by a company to its shareholders once per year. It depicts the company´s operations, and describes earnings, balance sheets, profits, sales, and other important facts about the company. It also provides detailed descriptions of the company´s business. Blue Chip Stocks -Some of the oldest most continuously profitable companies. Mutual Funds~ Mutual Fund-is an investment vehicle by which a person or group of people, called “mutual fund managers,” chooses a group of stocks, then sells them to investors in one package. A carefully chosen mutual fund is generally a low-risk investment for the beginning to intermediate investor. Mutual Fund-Net Asset Value-is the total price per share of the fund at a given time. The Net Asset Value fluctuates periodically. There are many types of mutual funds; here are just two: Growth Mutual Fund-invest in the common stocks of companies that are in their growth stage; thus offering possible rises in share price. Index Mutual Fund-Invest in a particular stock index. The S& P 500 is one popular index. Asset Allocation~ Is probably one of the most important terms in the investment industry, and is simply allocating your investment funds to a variety of investments to protect them against volatility or market downturns. An example would be to allocate money to large cap stocks, small cap stocks, a growth mutual fund, and an international fund. Different types of investments increase or decrease in price at different times. Some investments are highly volatile (experience large price swings during the year), while others are much less volatile, (experience smaller price swings during the year). Possessing a variety of investments will help to protect you against market downturns and volatile investments, (that is, if you choose to place volatile investments in your portfolio). Lower risk investments are usually the less volatile investments. A typical mutual fund can hold a few hundred stocks, with a different asset base, such as a money market account, growth stocks, bonds etc., therefore it is said to be asset allocated in and of itself. How does asset allocation protection occur? A variety of investments will help to balance the value of your portfolio. As some investments occasionally go down or remain constant, others may go up. This up and down act will help to balance the value of your overall portfolio. Understanding market downturns and volatility will enable you to 1. Concentrate on low-risk investments if you are a beginner, and 2. Enable you to hold your investments long-term. Read the asset allocation tutorial in the stocks section at http://www.msfy.com. Importance of Research~ Before you purchase a stock or mutual fund do research, research, and more research. What about that hot stock tip from a friend who says, "Buy now, or you will lose big-time?” On the other hand, you don't buy the stock just because a professional recommends it. Buyer beware, if it sounds too good to be true, it probably is. You purchase a stock only because you have done your research and it fits your criteria as a viable stock as well as a professional brokers advice. Through research is the single most important thing you can do before purchasing a stock or mutual fund. After research, you should know every available fundamental fact about your company or mutual fund, it's history and it's future plans. Then you can monitor your investment periodically. How to research a stock~ Evaluate the following; past history of earnings per share (eps), return on investment (roe), price to earnings ratio (p/e), yearly price of the stock, assets of the company, quality of the company management, lawsuits facing the company, buying or selling of the stock by company management. You can find this and more information in the company´s annual report. To study the 6-month to 10-year history of various companies, go to http://www.msfy.com, click on the stock or mutual fund quote or chart page and study your chosen stock or mutual fund. There is also a page of “stocks to look at” and “mutual funds to look at.” Use these symbols to play around with and learn the stock/quote chart. There are many stock and mutual fund tutorials on the website. After you learn all of the investment education at http://www.msfy.com visit your local library and study the Valueline investment reports, this report lists a variety of facts about individual stocks. How to Research Mutual Funds~ Learn to research mutual funds by evaluating the yearly management fees and loads, as well as the asset allocation mix mentioned above. All mutual funds have yearly management fees. Mutual funds that have a yearly management fee of 1.25% or below are said to have a low yearly management fee. Management fees are how mutual funds make their money. Mutual fund companies must pay their managers and other cost, management fees are just one way. Some mutual funds are “no-load” and some are “load.” The loads can sometimes be as much as 3%-6% (of your money), paid to the mutual fund company. It is taken out of the money you send in for your investment, when you purchase a mutual fund through a broker, the load is used to pay the broker. When you purchase a mutual fund directly through the company you still have to pay yearly management fees (which can be low, if you are careful in choosing a mutual fund with low fees), but many mutual funds purchased directly from the company are “no-load.” No-load means there is no up front fee to purchase the mutual fund. By contrast, there are some really expensive mutual funds that have a front-end load and a back-end load. An example would be that you would pay 3% to purchase the mutual fund and another 3% when you sell, this is also in addition to your yearly management fee. Why learn to invest? Learning and understanding stock and mutual fund research, is the single most important aspect of investing, whether you use a broker or invest on your own. You should learn the basics of investing so, 1. You can invest some of your money for higher long-term gains, 2. You can choose investments that are right for you in your company´s retirement plan, 3. You can choose investments for a retirement plan if you are self-employed, 3. You can invest money for your children´s college fund. 4. Should you choose to use a stockbroker, you can understand what he or she is doing with your money-you can research the investments your broker recommends to you. Brokers get paid a commission to invest your money, you must therefore be sure they are recommending investments for all of the right reasons. After you learn to research, periodically monitor your investments to verify their stability. Use the Stock and Mutual fund tutorials at http://www.msfy.com to future your education about beginning investing. Dr. Lois Center-Shabazz @2002 Disclaimer: This article is for informational purposes only, consult with qualified professionals in your field before starting a business. |
