INVESTMENT ACCOUNTS » Investing Money

If you have ever watched a classic film, you may recall images of men smoking cigars and watching a ticker tape print out from under a glass globe. That paper trail was how those guys got their value information regarding the stock market trades of the day.

They would then contact their representatives and tell them to get out their and buy and sell based on their demands. Paper trails begone as online trading is the way most people can now work on being their own financial fat cat.

What is online trading?

If you work for a company that offers a 401k retirement plan, and you participate in it, you may be getting company stocks as part of the deal.

If you are, you could also see those company stocks get special tax treatment. The company stock you have in your 401k plan requires some special consideration should you be moving to a new company, or thinking about rolling over your 401k funds into an IRA. 

Companies that offer their stock as part of their employees’ 401k retirement funds do so because the employees will receive special tax treatment for these stocks. So, let’s say you buy $50,000 worth of company stock as part of your 401k. You then decide to rollover your 401k money into an IRA.

If you are living paycheck to paycheck and have very little money left over you may be in the position of choosing whether to invest and save your extra money or to focus your efforts on paying down debt.

If you can choose only one option, it may actually be wiser and more cost effective in the long run to pay down your existing debt.

The ideal financial situation

ETFs, also known as Exchange Traded Funds, are investment vehicles traded on stock exchanges. They are similar to mutual funds because they offer an undivided interest in a pool of financial securities; however, they are able to be traded by individual investors rather than having to be handled by a fund manager (except in special cases with authorized participants, or large institutional investors).

ETFs hold assets like stocks and bonds, and they trade at approximately the same price as the net asset value (NAV) of its assets during the trading day. Like mutual funds, they offer low-cost benefits, but also incorporate many stock-like features (ex. trading throughout the day), making them rather popular investment options for those looking for the best of both worlds.

Bonds are debt securities distributed by authorized issuers (business or government entities) that represent a debt owed by that issuer. Similar to a loan, a bond represents a formal contract between the issuer (debtor) and holder (lender), where which the holder gives money to the business to hold. After time has lapsed (i.e. the bond has matured), the issuer is obliged to pay interest (the coupon) and/or repay the principal. This occurs in fixed intervals over a period of time.

Bonds and often associated with stocks because they are both securities; however, there are a couple of major differences between the two. While bonds offer holders a creditor stake because they are lenders for the company, stockholders have an equity stake, meaning they are owners. Another difference is that bonds are based on a defined term (maturity) because since they are simply borrowing external funds to them to finance long-term investments. On the other hand, stocks are usually held indefinitely since the holder has a more permanent relationship as owner.

Stocks, in simple terms, represent a share of ownership in a corporation. Similar to bonds, stocks are securities. However, while bonds only allow investors to participate with the company as a lender who may or may not receive a return if the company closes, an investor has the right to receive dividends, and can get a share of the business if it is sold.

Individuals or companies that legally own one or more of a company’s stocks are known as stockholders (or shareholders). You can find shareholders in both private and public trade companies. Companies and stockholders work in conjunction to raise money for the company. As a token of appreciation for the stockholder’s investment, the company is expected to enhance shareholder value.

Mutual funds are companies that pool money together from various investors then invest that money in various financial securities (stocks, bonds, money markets, additional securities and assets, or maybe a combination of all of these investment types). Also known as open-end companies, mutual funds allow investors to buy from them directly (or through a broker for the fund), rather than from a secondary market of other investors like NYSE or NASDAQ.

The History of Mutual Funds
Mutual funds (also known as open-end funds) have been in existence since at least 1924 when the Massachusetts Investors Trust was founded. However, it wasn’t until the Investment Company Act of 1940 that the mutual fund was officially recognized as one of three types of investment companies available in the United States, also including investment trusts (UITs) and closed-end funds. Since that time, they have grown in popularity because they offer low-cost investment options with ample diversification possibilities. Also, they allow for high liquidity, something many investors yearn for.

Managed funds are a type of mutual fund with investments invested in different types of securities. There are  two general types of managed funds, actively managed funds and passively managed funds.

Actively managed funds involve a fund manager researching, analyzing the performance and actively tweaking the fund so it can perform at its highest potential. Managed funds are established and constructed in hopes that the returns they generate will be larger than the performance of the investment benchmark index indicators. Although they are different from each other for several reasons, both hedge funds and mutual funds have people responsible for their performance, thus making them both actively managed funds.

Passively managed funds, where the goal is not to outperform the benchmark index but just match the rate of return of the market trend. Passively managed funds are investments approached with more of a “hands off” approach, meaning the fund manager does little to tweak or adjust the investment once the ball gets rolling. The less the managed fund is adjusted, the better it may be for investors who are concerned with transaction fees.

Rules and regulations for every state differs. For those looking into buying a real estate  property as an investment outside of their home state may find it confusing. From paper work, to property tax laws, to the different kinds of home insurance each state requires of homeowners – it’s all very confusing. Here are some resourceful information on the different laws, regulation  and assistance programs that may find helpful in your search for your real estate investment:

• HUD state-by-state guide to home purchasing information
• National database for the National Associate of Realtors
• National database of properties for sale
• Free real estate information that can be used to get a rough estimate of your homes current value
• A portal featuring state-by-state multiple listing service guide
• Overall federal law and tips on homes and housing in U.S.
• State-by-state guide for perfect for figuring the ins and outs of your state

When money is tight, saving some for a rainy day can be an overwhelming concept. However, in the long run, not making efforts to build a financial nest egg may be harmful to your entire financial well being. There are many contributing factors that make investing and stowing away extra cash extremely important and can help you in the long run. Everyone needs some type of financial cushion to help them out in hard times. Whether the problems happen because of medical emergencies, job loss, or other unexpected causes -  when you get hit by these problems  and you have no investments to back you up financially, you may end up in financial ruin just trying to keep yourself afloat.

If you currently aren’t saving or investing here are a few scenarios to consider…