Buy Investments That Make Money
Buy Investments That Make Money
“The reason the poor and middle class struggle is they buy liabilities they think are assets.”
Robert Kiyosaki, best known as the author of Rich Dad Poor Dad — the No. 1 personal finance book of all time — said this to me during an interview and it really struck a chord…
Instead of engaging in moneymaking investments, people are buying things that aren’t making them a dime?
Last week, we covered three different investments Robert broke down to help you actually make money and grow your wealth.
Today I want to take a deeper dive into one of those investments: stocks.
What exactly is a stock?
Also known as shares or an equity, a stock is a type of security that represents ownership of a company.
Ownership is determined by the number of shares a person, or shareholder, has compared with the number of shares available. Owning a company’s stock gives the holder a claim to a part of the company’s assets and earnings.
Let’s break it down a bit…
Say we have pizza pie and that pie is a company. This company is divided up into shares. Each slice represents one share.
You decide to purchase one. This would represent a percentage of ownership in the company. Someone else could decide to purchase five shares, representing a larger chunk of the company.
Types of Stock
There are two main types of stock: common and preferred.
Common stock gives the shareholder the right to vote in shareholder meetings and collect dividends.
Preferred stockholders do not have the right to vote but do have a higher claim to assets and earnings. They get dividends first and have higher priority if the company goes bankrupt — they get paid first.
While preferred shares have an added layer of security, common stocks historically outperform them.
How Do Stocks Trade?
Most stocks are traded on exchanges. An exchange can be a physical place with a trading floor or virtual.
The purpose of an exchange is to enable the transactions between buyers and sellers while reducing risk.
You are probably familiar with some of the big-name exchanges like the Nasdaq and New York Stock Exchange (NYSE).
The NYSE — or “Big Board” — was created in 1792 by the signing of the Buttonwood Agreement in New York City by stockbrokers and merchants. It has stocks like Bank of America, Ford and Coca-Cola.
The Nasdaq is an over-the-counter, or virtual, exchange that holds a lot of technology companies. Companies like Apple, Comcast and Intel.
What Makes Stock Price Change?
The simplest answer: supply and demand.
If there is a large supply and not a lot of buyers, the stock’s price is pushed lower. If there are a lot of buyers but not a lot of stock to sell, the price goes up.
The main theory behind the price movement of a stock is that it indicates how much people feel a company is worth. But a company’s value and stock price are not one in the same.
No one knows for sure why stocks go up and go down. Different investors have different metrics they look at.
So Is There a Stock Store?
Many everyday investors use a brokerage to facilitate the buying and selling of stock. There are full-service brokers where you can talk with someone about your trades. You can also use a discount broker where you can go to a website and place the trades yourself.
(We covered brokers recently. Click here for more info.)
And there’s more….
Stocks are just one type of paper asset that you can cash in on.
Next time we’ll give you more ways to invest and pull in profits.
Dr. Patrick Gentempo