There are basically 3 types of asset categories of investments which can be understood in the following lines* Cash: CD’s (certifica...
There are basically 3 types of asset categories of investments which can be understood in the following lines
* Cash: CD’s (certificate of deposit) and Treasury bills are the two cash equivalents that are most widely used. In case of cash equivalent the funds are readily accessible and a high degree of liquidity can be maintained.
* Bonds: these are debt instruments which are issued by the company to finance a certain phase of its operation. If you invest in bonds you actually lend your money to the bond issuer and you will get certain interest on that amount and a repayment of principal when the bond matures.
* Stocks: the shares of stocks actually represent an ownership in a particular company or organization. The stock depends upon the size of the company and its prospects. The categories include value stocks,
growth stocks and large, mid and small cap and all this depends upon the size and performance of the company in the market.
When you want to invest in any stocks see which vehicle is right for you and study the possibilities of risk management, taxes and inflation and also asset allocations. Before actually starting out, here are a few simple advantages you should be familiar with
* Common stock has the potential of delivering very large gains unlike other alternatives. Annual returns are quite high.
* The loss form stock purchased with cash is limited to the total amount of initial investment, and so it is a good choice.
* Stocks offer limited legal liability and hence it is a safe bet as you are protected from any liability stemming from the company’s actions.
* Stocks are liquid in nature and can be brought and sold quickly.
* Stocks according to statistics show a higher return than other investments.
* Stocks offer capital gains and dividends and stocks actually offer a partial ownership in a company. If the company does well there is appreciation of the stock and this is known as capital gain. Dividends are periodic gains which are distributed to the shareholders when the company does well.
There are some disadvantages too
* Stockholders are the last to get paid like all other owners. A company first pays its staff, suppliers and creditors.
* Although shareholders are company owners, they do not have rights and privileges that owners of private companies have,
* There is very little information that is disclosed to the shareholder and this causes investment decision making a tedious process.
