What is a mutual fund? What are stocks and securities? What are their pros and cons? And should you be investing in them? These are all questions that we’ll cover in Episode 13 of the #EverythingMoney Show.
To Get Your Questions Answered & To Get a Custom Financial Plan, Call Us Directly At 1-866-624-3741 or Request a Free Financial Consultation With One of Our Licensed Coaches Today!
DISCLAIMER: Arman Vakili is not a licensed securities advisor. Please consult with a licensed stock and securities adviser before you invest in stocks, mutual funds or any investment vehicle that has the potential of loss.
What Are Stocks?
Stock of a corporation is all of the shares into which ownership of the corporation is divided.
In American English, the shares are collectively known as “stock”.
A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares.
In the original era of investing, you could only purchase stocks in whole… you couldn’t purchase a portion of a stock.
But these days – thanks to the power of technology – there are dozens of applications and brokers who allow you to invest partially into a stock.
For example: If you can’t afford to buy a full Amazon stock, you can invest however much you can into Amazon and purchase a portion of the stock.
Managing Risk: Mutual Funds
Purchasing individual stocks can be considered a risky investment move. Especially, if you’re invested in one or two stocks in total.
As the saying goes, “Don’t put all your eggs in one basket.”
There is definitely some wisdom there. Main reason being, if you invest all of your money into a single stock, and that stock tanks then you’ll have lost a large portion, if not all, of your assets.
The opposite is also true, though. If that stock goes through the roof, then so will your assets, being that you’re invested fully into that one stock.
It’s quite rare for a stock to perform that way, however. For every Amazon and Tesla, there are thousands of companies that went out of business.
Knowing this, what’s the best approach to investing in stocks?
Diversifying according to your goals and risk tolerance.
When you diversify, you’re essentially investing your money into multiple stocks.
A portfolio that has multiple stocks in it is called a Mutual Fund.
I personally hold 8 positions in my stock portfolio. I’m not diversified across 500 different companies because I don’t want to dilute my returns. Because I’ve kept my portfolio tight, my returns have been substantial.
My diversified portfolio has given me a return of over 120% during the last 12 months (from the date of this article).
I can’t say that this will work for everyone, but I can refer you to Ray Dalio’s philosophy on investing:
“If I only choose companies that will return 20% per year, then I can be sure that my portfolio as a whole will return at least 20%”
So if you want to invest in winners who are proven to win, then there’s a good chance that you’ll have wins in your portfolio as well.
There is much more to be learned about investing in stocks or mutual funds so please consult with a licensed advisor BEFORE you invest your hard earned cash.
To Get All of Your Questions Answered and to Find the Best Growth Strategies For You, Feel Free to Call Us Directly At 866-624-3741 or Simply Request a Free Comprehensive Financial Consultation With One of Our Licensed Coaches.