Following on from our ‘Where should I put my money (If I Had Some)’ guide, we’ve delved a little deeper into one of the investment alternatives we suggested to help you understand more about your options……
What are shares/stocks/equities?
To make it easy, a stock is a share in the ownership of a company. A Stock is your claim on the company’s assets and earnings. As you purchase more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing – OWNERSHIP.
Yes that’s right if you own even one share in a company then you my friend are one of the owners of that company. Nice work!
Bonds, James Bonds….
Nope, Nothing to do with that guy, or even the spy agency. But he did work for the government and that’s where we could draw a link between the two. I like to think of Bonds are IOU’s with interest. You the Investor will give the Issuer of the bond money in return for a Bond note, eg IOU. Which means the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value (What you initially invested) or par value of the bond, when it “matures,” or comes due after a set period of time. Government Bonds are usual low risk therefore the interest paid is not that high, but steady predictable income is great for offsetting risk within other areas of your portfolio. Thanks James
Gold, Wheat, Oil, Minerals, Soy and yep even our beloved Coffee…. Commodities
Commodities can be broken down into 2 main areas “Hard and “Soft” adding up to over 100 different items that can be invested in. Hard Commodities typically are natural resources, things that can be mined, or extracted like Gold, Oil, and Rubber. On the Soft side we have agricultural products such as corn, wheat, coffee, sugar, soybeans and even pork. The most direct way of investing in commodities is by buying into a futures contract. A futures contract obligates the holder to buy or sell a commodity at a predetermined price on a delivery date in the future.
Back to the …. Futures.
Futures are financial contracts obligating the buyer to purchase an asset or the seller to sell an asset, such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardised to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. You know when you will buy or sell and at what price. Make sure you are on the right side of this deal because you can’t go back to redo your futures contract.
FX Market…aka Currency trading
FX isn’t the sound on your video game it stands for Foreign Exchange or Forex Market. This is trading currencies against each other for example AUD/USD (Australian Dollar against United States Dollar) with ether a buy or sell option you can make money whether the market is rising or falling. Trading currency is the most liquid market of them all with over 5.7 Trillion USD traded every day. Be careful a lot of economic factors effect the market and it can have huge moves in under 1 second. Best to say clear unless you know what you are doing with this one.