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Investing- Getting Your Financial Game on!

Investing - You were not born a financial genius however, you need to learn to invest money and become financially savvy if you are going to achieve your financial freedom!

No matter where you look you will always find that there is a strong correlation between financial knowledge and the quality of financial planning.

Your experience will always be that when it comes to accumulating wealth, the more you know, the richer you will grow. While on the other hand what you do not know will continue to cost you money.

You must realize by now that it will take more than just savings to achieve your financial and retirement goals. Yes you will need a financial plan that focuses your investments! But when you look at the workings of the financial world it’s easy to become overwhelmed and fearful. But don’t be intimidated by its complexities.

You do not know it yet but, by the time you are done reading this article, you will have the financial planning information needed to make you a savvy investor and help you get your financial game on!

Let us begin by looking at some of the financial planning terms used and their financial application.

If you want ownership in a company then stocks are the way to go!

Stock or shares or equities are financial instruments that representunits of ownership in a company. The holder or owner of a company’sshare has a residual claim on the company’s earnings and assets.

There are two types of stocks that a company can issue:-

Preferred or Preference Stcoksand
Common Stocks.

The difference between the two types is that preferred shareholders have priority over common shareholders in receiving dividends whereas common shareholders only have a residual claim to a company’s earnings.

Stocks historically offer the highest returns in the securities market in order to compensate investors for the higher amounts of risk they have to bear. As a company can only pay out dividends after all other credit obligations have been satisfied.

If you want multiple ownerships with a little less risk, then mutual funds are the way to go with your financial planning!

A mutual fund allows you to pools your funds, usually with other small investors to participate in the market in a way that you normally could not given your limited resources. You buy shares in a mutual fund, and the fund will in turn pool the funds received and purchase various types of securities (stocks, bonds, money market instruments, real estate, and other financial planning securities) from a wide cross-sector of the market allowing you to have a well diversified investment.

If you just want to be a lender then bonds are the way to go!

Bond is basically an “IOU” from the Government or a corporate entity that promises to payback the principal (the amount borrowed) plus a defined amount of interest over a certain period of time.

Government Bonds are considered the safest investments in the securities market because of their extremely low default risk and so accordingly offer the lower returns.

Corporate Bonds offer a higher return due to greater risks involved, but does not entitle you to any type of ownership claim, as with stocks or other equities. However, as a corporate bond holder you have legal priority over shareholders and your payments must be satisfied before any shareholder (inclusive of preferred shareholders) can receive dividends.

Once you decide on what you want to do, here is how you play!

The stock market is a market that allows buyers and sellers of stocks or equities to carry out trading in an organized and controlled manner via stock exchanges or over the counter. The stock market consists of two markets;

The primary market consists of Initial Public Offerings’(I P O's) where shares are being offered to the public for the first time by entities that are seeking to raise capital.
The secondary market,the more popular of the two, is a market that provides for the trading of second-hand shares on the exchange or over the counter.

In order for a stock to trade on an exchange, the company which issued the stock must meet certain requirements that the exchange’s governing body has set.

Stocks that are traded over the counter are stocks which were issued by companies that failed to meet the requirements of stock exchanges.

The stock market is apart of the larger securities market where all types of financial instruments are traded.

Finally, like any game, you need to be able to keep score!

A stock index is a group of stocks that is used to gauge the overall performance of the stock market. The most popular ndexes are :-

Standard & Poor's 500 (S&P 500)
Nasdaq Composite Index (Nasdaq)
Dow Jones Industrial Average (Dow Jones)
Wilshire 5000, and
Value-line composite index.

In the Bahamas The Bahamas International Securities exchange (B.I.S.X) is the governing exchange

An index numerically shows whether the market is up or down based on a percentage change in points with each exchange having their own unique method of calculation.

Indexes are important as a benchmark to measure how well you or your investment manager is performing in comparison to the overall market.

Just like I promised, you now have it, a break down of all those fancy financial planning terms that you have been hearing about and your first lesson as you learn to invest money.

Now you are ready to get your financial planning game on!

And if you need help getting the money to invest Taking Control of Your Money workbook can help.

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