When the investor is renting his house currently and wants to buy it without credit, it can be a good decision (extremly rare situation). But usually people buy it on credit. Before borrowing, it can be very useful to get the prices of the debt from a lot of credit companies and compare them. The total fees of the companies can be extremly different. The best situation to buy a home on credit when the investor has got so much capital and regular income that his weekly fee of the credit is going to be as much as the weekly renting fee (or lower). In this case the investor is going to own a property in the future when things are going strong and not paying the rental fee. Moreover, it is always a good decision to reduce the living costs to benefit from capital building.

An other situation is when the investor currently owns a house, but has got capital and regular income to purchase a bigger house. In this case it is not a good decision to buy a new home. When he buys a new home (and he is using the new one and selling the old one), he is going to renovate it. The investor is living in the house, so the house deteriorates. It is better to pay in this situation his credit back and start to save money for another house or flat.

When the investor owns a house and does not have any credit on it and has got enough capital to buy a new house or flat without credit, investing in real estate can be profitable. The investor buys the real estate and he can rent it and he can take advantage or the growing price of the house/flat. There are certain times when the price of the real estate is falling, but on a long term the price of them is going to improve. This kind of investment is a good way to reserve capital.

Open-End Funds

Open-End Funds can issue unlimited amount of shares. This means, when the request on their shares is improving, they issue more shares. When an investor wants to sell his open-end fund shares, the Fund buys it back. The cost of buying an Open-End Fund is charged in a premium, which usually ranges between 5%-9% of the invested capital. This cost is high, so the investor must determine the possible return on this investment.

Closed-End Funds

Closed-End Funds issue a determined amount of shares. These Funds have buy and sell prices and can be traded like a stock. The buying commission is much lower than at an Open-End Fund, usually approximately 1%-1,5%. When an Open-End Fund has got mostly the same investing performance like a Closed-End Fund, the Closed-End Fund will have greater pay-off. This is because the premium of the Open-End Funds is much higher.

Balanced Funds

Balanced Funds contain stocks and bonds as well in a portfolio. This type of instrument is made for those kind of investors, who do not want to buy the bond component of their portfolio separately. These Funds are a mixture of safety and moderate growing. Their return and risk depend on their components. When the Balanced Fund contains more equity assets, it could lead to a higher return (and losses). A Balanced Fund with a higher bond asset is made for capital preservation.

Speciality Funds

Speciality Funds are made for those investors, who do have an idea where to invest. Sector Funds are those Funds, which invest in a special sektor. For example technology, agriculture, health, materials, etc. These Funds are extremly volatile. An other type of the specialty Funds are Regional Funds. These Funds invest in a special region, for example in East Asia or into a special country, for example into China or India. Investing in speciality Funds needs more research than an average Fund, because the risk factor of these Funds is higher.

An option is a right to buy or sell a fixed amount of a particular currency, equity or commodity at a particular price and date in the future. Before investing in options, it is important to understand what is a call option and what is a put option.

Call option:

Buying a call option contract gives the investor the right to buy (not an obligation!) a particular instrument at a particular date (expiration date of the option), price and amount. The seller of the call option (or the writer) has obligation to sell the amount. When the investor wants so sell the option, for example when the contracts price has risen, he can sell it. When at the expiration date of the option the price of the instrument is over the strike price of the option, the option is going to be exercised. When the price of the instrument does not reach the strike price of the option, the investor will not exercise the option, because the strike price of the option is higher than the instruments price. In this case the investor lost the paid capital for the option and the writer (seller) wins this premium.

Investing example for a call option:

The investor decides to buy XYZ corporation stock options. The share price is 147$ at the time when the investor buys the option. He buys 10 contracts (10×100 shares, one contract is usually 100 shares) april 150$ call option for 2$/contract. This means, that his total required capital for this investment is 2000$ (2$×1000). At the expiration the shares price is 153$, which means that the investors options are going to be exercised and he bought XYZ corporation shares for 150$. So he earned 3$/contract, which is 3000$ (3$×10×100). It is important to realise that the shares price moved 6$, from 147$ to 153$ and he gained “only” 3$/share. But, when the share price at the expiration date is for example 149$, the shares price gained 2$, but it did not reach 150$, so the investors options are not going to be exercised. In this case the investor lost 2000$.

Put option:

Buying a put option contract gives the investor the right to sell (not the obligation!) a particular instrument at a particular date (expiration date of the option), price and amount. The buyer of the put option (or the writer) has obligation to buy the amount. This case is just the opposite like at the call option, so the investor is waiting for a share drop.

Investing in options has got several reasons. Firstly for speculation, because this investing form has got a huge leverage, so it can make high profits regarding to the invested capital. Secondly for protecting an investment. For example, the investor has got 1000 XYZ shares. The XYZ share price is 147$ currently. So his total investment is 147000$. The investor buys 10 contracts april put option at 145$ for 2$/share, so he invested 2000$ (10×100×2$). If the price of the equity drops to 130$/share the investor has got the right to sell 1000 shares at 145$. In this case he did not lose 17000$ (147000$-130000$) because of the option. He lost “only” 4000$, 2000$ for the price dip of the shares from 147$ to 145$ and another 2000$, what he paid for the option.

Investing example for buying  corn futures (opening a long position) :

The investor buys 5000 bushels corn for may at 6$/bushel. The nominal value of this contract is 30000$ (5000×6$). ­The margin is 1500$, which the investor must deposit (the required deposit is different at several companies). So the leverage is 1:20 (1: 30000$/1500$). The price of the corn at the end of april climbed to 6.30$ and the investor decides to sell his contract. This means, that the investor gained 0.30 $ (6.30$-6$)/ bushel. His total revenue on this contract is 1500$ (0.30$×5000). So he doubled his capital with this contract. But, when the price of this contract fells to 5.70$, the company warns the investor to put more deposit on his account or the contract will be closed, because he lost all of his deposited money.

Investing example for selling light sweet crude oil (opening a short position) :

When the investor sells the contract, he expects that the contracts price is going to fell. The investor buys 1000 barrels of may crude oil at 110$. His contract has got a nominal value of 110000$. The investor is trading at the same company, so his leverage is the same, 1:20. The required deposit in this case is 5500$ (110000$/20). The price of the light sweet crude oil has dipped to 105$ several days later, so the investor sold his contract. He earned 5000$, because he gained 5$/barrel and he had 1000 barrels.

It is very important to see that during these trades the price changing (in percentage) of the picked futures is small and the returns are huge. For example at the corn trade, the price of the corn moved to 6.30$ from 6$. This means a 5% change in the price of the corn, but the investor gained 100% regarding to his capital. These price changings can occur at the opposite site of our trade, which means that the investor lost his capital.

Stocks signify a part of holding of a corporation. Stocks are also known as equities or shares.

Types of stocks?

There are two main types of stocks: common stocks and preferred stocks. Common stocks have voting rights and the owner of this stock receives dividends. Preferred stocks does not have voting rights, but they receive dividends, too. The amount of the dividend can change at common stocks. Preferred stocks have a fixed dividend. Holding a common stock is more risky, because common stocks can receive more or less dividend. Moreover, preferred stocks have a priority. For example, the corporation is heading to bankrupt, then preferred shareholders are going to be payed first and later on the common shareholders.

Where are stocks traded?

Shares are traded at two different markets: primary markets and secondary markets. Primary markets are those places, where corporations sell their shares to investors. Corporations get money for example for a new investment and the shareholders get an ownership of the company. Secondary markets are those places, where investors sell the stocks to other investors, so in this event the corporation does not benefit from selling the shares.

Round Lot

It is possible to buy any amount of shares, but most of the investors buy only round lot. Round lots are those amount of shares, which are able to divide with 100. For example, 100, 200, 2300, 34500. Odd lot is a number of shares between 1 and 99 (for example: 8, 23, 71). Mixed lots consist round lots and odd lot, for example 144 shares.

Stock positions

Three positions can be hold with stocks. Long, short and flat position. A long position is, when an investor bought shares. For example, someone bought 10 Microsoft shares, then he has got 10 Microsoft long position. Short position is when an investor sold the equities first and later on he is going to buy them back. Selling a stock means that the investor thinks, that the price of the shares is going to drop in the future. Flat position is, when the investor closes his position, sells when he bought and buys when he sold the shares.

Investing through a full-service brokerage

Minimum capital

The required capital to use a full-service brokerage is not determinated, but usually it is more effective to use a full-service brokerage when the investor has got more than US$200.000 to invest. The costs of these brokerages are really high, so the invested capital should be a lot more than for example at a discount brokerage. Moreover, the time cost of the investor must be high, too. It should be more worth for the investor to pay for the extra services of the company than to do it by yourself.

Commissions and fees

Full-service brokerages usually do not charge for the extra services directly. The extra services are paid through the trading commission, so when for example a discount brokerage charges maximum US$20 for a trade, a full-service brokerage charges 150$ or more for a trade. The investor must know his type of person. He must decide whether to trade as an active trader or to be a buy and hold investor. If he is a buy and hold investor, who does not have time to do research and analysis, a full-service brokerage is the right brokerage firm for him.

Personal financial management

Full-service brokerages offer a personal financial management, which include retirement planning, taxation analyses, financial analyses, life insurance needs analyses and much more. But these services are available only for those investors, who have a minimum account balance of a few million dollars. For example, the investor has got US$1 million and buys an investing fund. The entry fee they receive is 1% (not too much regarding to several investing funds), the full-service brokerage earns US$10.000. From this amount of money the company can lightly pay the fees of the workers, who do the extra services.