Investing 101

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Dan Morrison 

Ok, kids. Time for a refresher on the basics of investing. It seems these days people are always wanting to make the process of investing sound sexy and complicated. Mostly, I guess, to impress their friends. “My broker has me in a triple-times, hedged, long/short, tax-efficient stretch lion with a one and a half twisting backflip.” Ok, I made that up. But, you get my point.

In reality, any type of investment you can think of – stocks, bonds, CDs, precious metals, etc. – all boil down to this: safety, income or growth. Each investment will do one of these three things well and maybe a second one to a lesser degree. But, NO investment will give you all three.

Let’s look at a couple of simple examples, starting with Certificates of Deposit (CDs) at the bank. Which of the three do you think CDs provide, first and foremost? Go ahead, guess. Go ask someone if you need, I’ll wait… Safety. Correct! CDs give you safety on your principal because the FDIC backs them (up to $100,000). What about income? Yes, a CD will pay you some income. What about growth? No, a CD will not grow (appreciate) in value. The account may go up if you reinvest the interest, but that’s not true growth. So, CDs provide safety first, with secondary income and no growth.

What about bonds? A bond is a loan made to an entity (typically a government or company). For example, you may agree to loan General Motors $10,000 for 10 years at 6% interest. Over the next 10 years, they will pay you 6% ($600) a year, and at the end of the 10 years, they will give you your $10,000 back. Based on this information, what is the primary purpose of a bond?  Bonds produce income; money you can spend today. Do bonds provide safety? Well, some. They are often backed by the assets of the company or revenue of the government to whom you’ve lent the money. And growth? No. Again, like CDs, bonds don’t appreciate in value. At the end of the term, you only get your principal back.

Finally, let’s look at stocks, or equities as they are also referred. A stock represents ownership in a company. Buy one share of Apple and congratulations, you can tell all your friends you own Apple. Now, Tim Cook may not be calling you for advice anytime soon, but you are technically an owner. If Apple does well, and more people want to buy their stock, the price may go up. And you, as an owner of shares, will benefit from that. Your shares will appreciate in value! They will grow! Stocks, then, provide growth as their primary benefit. How about income? Again, some companies pay a dividend, which is a way to return profits to stockholders. Thus, there may be some income. And safety? Nope. No safety. If the company you buy stock in does poorly, your value can depreciate, sometimes all the way to zero. So, stocks are where you go for growth and some income, but not for safety.

The question you should be asking your advisor is, “Do my investments line up with what I need my money to do for me?” Likewise, you may want to review how your investments are blended together to give you the right benefits (safety, income and growth) in the right balance for you and your goals.

For more information on investing, check out our free guide on the True Cost of Investing by clicking here.

facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.


Charitable Giving Strategies in a High-Income Year

Tom Fridrich, JD, CLUⓇ, ChFCⓇ, Senior Wealth Planner  The end of the year offers an ideal opportunity to look both forward and back — reflecting on recent achievements, while setting goals for the upcoming months. For many of my clients, it’s also a time to review their finances and i …

Let’s Talk About Midterm Elections and Your Investments

This week was midterm elections and we’ve had many questions about what it all could mean, which we’ll tackle in today’s blog. We consider it a great honor to vote, and while we may not know the final results of the election for days (or even months), what we do know is the election will …

3 Nontraditional Ways to Give That Still Qualify for a Tax Deduction

Kevin Oleszewski, Senior Wealth Planner ‘Tis the season to give. In fact, 37% of charitable giving occurs during the last quarter of the year — 20% of it in December alone, according to a survey conducted by the Blackbaud Institute. And while the holidays are traditionally a time to reflect …

Considering Tax Loss Harvesting? What You Need to Know First

Kevin Oleszewski, CFP® Senior Wealth Planner As the tax year draws to a close, many high-income investors will look to reposition their portfolios to intentionally generate losses as a way to offset gains — an investment strategy known as tax loss harvesting.
1 2 3 115 116 117

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation