Stocks
Introduction
Everything is now working in favor of individual investors to learn about stocks and trade them. The Internet has opened up a new world to everyone.
Online trading has changed the average investors' involvement in trading their own stocks. The availability of company information has become so widespread and easily attainable that researching and finding stocks to buy and sell is as easy as logging onto your computer.
Buying a stock for the long term means that you want to own part of a company and you think that in the future the company will be profitable. If you buy stock in a company and the company performs well, the stock's price should rise. If the company fails, then the stock should fail you, too and go down.
Companies list their stocks on the various stock exchanges located throughout the U.S. The stock exchanges actually compete with each other for these listings, since companies that attract more trading make more money for the stock exchange that listed it.
Company stocks are assigned a "ticker", or trading symbol by the listing exchange. You may notice some well-chosen tickers that are easy to remember, like "DNA" for the company Genentech, a biotechnology firm. Or some companies' ticker is the same as its name, Nike for example.
You need to know the ticker of a stock in order to access information about the stock and eventually trade it.
The various stock exchanges are a very good place to start getting information on stock trading and general investing. We suggest you visit the following web sites:
* The American Stock Exchange (www.amex.com)
* The Nasdaq Stock Market (www.nasdaq.com)
* The New York Stock Exchange (www.nyse.com)
* The Pacific Exchange (www.pacificex.com)
* The Philadelphia Exchange (www.phlx.com)
Besides being a great online source, some of the exchanges listed above give free seminars about investing.
The Securities and Exchange Commission, which is the watch dog and regulator of the securities industry, also has an investor education program and you can get more information at it's web site at www.sec.gov/oiea1.htm.
Bonds
Introduction
Many investors decide to have a portion of their money in bonds or bond funds, and some experts say as much as 30 percent of your money should be invested in bonds.
Why? Bonds are very liquid -- easily sold -- and can be less risky than stocks, to start. They are fixed-income investments that pay interest, which means safer and more dependable income than many other investment choices.
A bond is very similar to an I.O.U. with interest. When you buy a bond you are giving money to a government, a corporation or a municipality—and it in turn issues an “I.O.U.” for the money you provided. Until that money (called the face value of the bond) is paid back to you on a specified date, you are paid interest on it.
Here are the types of bonds you can choose from: U.S. government securities, municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency securities and foreign government bonds.
It used to be hard to find information on the Web about bonds, but that’s not so anymore.
A good place to look may be The Bond Market Association site. This site has a great deal of information on bond basics as well as free bond price information on corporates, municipals and treasurys. It also has bond news and research information, and a list of bond dealers.
Bonds Online is another good source to know—it’s run by Twenty-First Century Municipals Inc., an online information- services company based in Mercer Island, Washington. It has various news sections on the fixed income market and a bond market commentary updated everyday. Price quotes and research reports can be found there, too.
You can also go to the official site for Treasury bond information, which is the Bureau of Public Debt Online. Ever wonder what that savings bond is worth? The site has a calculator to help you figure it out and will even let you buy savings bonds online. But there’s a ton of more bond information there for you to peruse.
Also, visit the mutual fund types page to find out more about bond funds.
Mutual funds
What's a mutual fund?
A mutual fund, also referred to as an open-end fund, is an investment company that spreads its money across a diversified portfolio of securities -- including stocks, bonds, or money market instruments.
Shareholders who invest in a fund each own a representative portion of those investments, less any expenses charged by the fund.
Mutual fund investors make money either by receiving dividends and interest from their investments, or by the rise in value of the securities. Dividends, interest and profits from the sale of any securities (capital gains) are passed on to the shareholders in the form of distributions. And shareholders generally are allowed to sell (redeem) their shares at any time for the closing market price of the fund on that day.
Go to the MarketWatch Mutual Funds page for news, commentary and data on funds.
Why invest in mutual funds?
There are a variety of reasons why investors might choose mutual funds over other investments, such as individual stocks and bonds. The number one reason is diversity, which can both increase your potential returns and decrease your overall risk.
Mutual funds allow an investor to spread out his or her money across as few as a handful to as many as several thousand companies at one time.
Funds can be especially advantageous for small investors who would be forced to pay enormous transaction fees if they bought the securities individually, and for investors who either don't have the time to research their own investments or who don't trust their own investment expertise. (For more on asset allocation, see "Build Your Own Mutual Fund Portfolio" tool).
That said, mutual funds aren't necessarily low-cost investments. Many of them charge one-time "load fees" to new purchasers that can exceed 5 percent of the investment, and all mutual funds take on average take 1.3 percent of assets a year for operating expenses, expressed as the "expense ratio."
As a result, "index" funds (see below) have surged in popularity in recent years because, on average, they provide a much lower expense ratio than managed funds. Also an index fund's risk is limited to that of the benchmark index that it tracks, such as the Standard & Poor's 500.
Finally, the rapid emergence of 401(k) plans as the retirement vehicle of choice for millions of Americans means that mutual funds are here to stay.
Professional management can be both a benefit and a liability of actively managed mutual funds. Several studies show that, over time, the average, actively managed fund has underperformed the overall stock market. Still, by picking funds with good long-term track records, managers you trust and low expenses, investors can build a portfolio with the potential for steady, long-term returns that match their own investment goals and tolerance for risk.
Liquidity -- the ability to readily access your money -- is another benefit of mutual funds. Funds can be sold on any business day at that day's closing price – or at the following day’s close if the sell order is placed after the market closes.
The price per share at any given time is known as the net asset value, or NAV, which is the current market value of all the fund's assets, minus liabilities, divided by the total number of outstanding shares. As new investors buy into a fund, the number of outstanding shares goes up, as does the market value of assets, but the NAV remains the same.
Mutual fund educational links
* Online classes are a fun way to learn mutual fund basics
* Take The Vanguard Group's mutual fund quiz
* The American Association of Individual Investors' glossary of mutual fund terms
* The Investment Company Institute’s Web site for mutual fund facts and figures
Options
Introduction
You may have heard of options and seen that you can trade them in your online account, but what is a stock option and why would you even care if one exists?
Let's start first with a very basic question: What is a stock option?
A stock option is not a physical thing like holding shares in a company. Instead it is a contract between two parties.
When you own stock (or shares) you actually own part of a physical entity--a piece of a company. An option is an agreement, or contract, where one party agrees to deliver something to another party within a specific time period and for a specific price.
This distinction is important because with options you are not borrowing anything. For example, in the case of stock, you must first borrow the stock to short it--but with options there is nothing to borrow so you can short options without the worry of borrowing first.
Options are popular because they can help you get more bang for your buck. Instead of buying a stock outright, you can enter into an options contract which can be much cheaper but have the same--or even better--results.
Options can also be less risky than holding stocks, but that is not always the case. If you plan on trading options at some point make sure you understand fully the risk and downside of each trade. Also, options take more attention and can amplify the movement of a stock in your favor or out of your favor very quickly. So options trading is not for everyone, especially if you are not comfortable taking on risk or managing positions.
Learning about options isn't difficult anymore. There are a few web sites that have popped up recently to help you keep track of options news. And there have been plenty of books written recently that can really help individual investors understand how using options can be a worthwhile endeavor, depending on your financial needs.
Many of the various options exchanges have web sites geared towards individual investors looking for information on options.
Probably the best prepared to reach investors is the Chicago Board Options Exchange, which has a terrific web site set up to educate you. Visit its education page. The CBOE also holds seminars and sells books about options and how to trade them.
Your broker also can give you much guidance if you are prepared to trade options online or through a proprietary service.
source from marketwatch
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