Category: What are Stocks?
| Investing Funds are for those investors, who do not want to buy and manage their stocks directly. This kind of investment is a good decision for the buy and hold investors, because they protect the beginner individual investors from costly mistakes. Investment Funds do have a high entry-fee or closing fee, but the cost of the mistakes what avarage beginner investors do are much higher. Moreover, the overall return of the investment funds were higher in the last decade than the overall return of the avarage investor who purchased his stocks directly. |
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.
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.