After decades in the financial services industry, including over four decades in leadership, consulting, personal development, and other areas related to planning, as well as over 15 years as a Real Estate Licensed Salesperson in the State of New York, I have come to believe that a large percentage of Americans lack proficiency and/or basic knowledge and understanding of even the most basic investment concepts! Although most of these people appear to believe they understand, when you hear people with income-oriented investments questioning growth, and/or vice versa, it becomes clear that some form of fundamental - primer, to boost knowledge and understanding, in these types of subjects, may be beneficial. With that in mind, this essay will aim to briefly evaluate, investigate, review, and debate some of these fundamental differences, in the hopes of assisting people in making more informed decisions based on their unique situations.
1. Stocks: Stocks come in a number of shapes and sizes, but they normally fall into one of two main classifications/ categories: favoured or common! One of the significant differences is that common stock ownership gives you greater voting power and/or decision-making power, but it also comes with higher risk! Preferred categories, on average, have less fluctuation and grant/ distribute bigger dividends, among other things. Furthermore, some corporations are classified as large-caps, while others are classified as small- or medium-caps! This has something to do with the overall quantity of capitalization, and/or the value of these stocks, and so on! A corporation's sector, or primary industry, should also be taken into account. Times change, and some industries do better than others as a result of these shifts! Some of these investments are thought to be safer, while others are considered to be more risky! Perhaps the most important thing to remember is that a stock implies ownership, and shares indicate either risk or greater success!
2. Bonds: Unlike stocks, bonds are debt liabilities issued by a firm and/or a government agency (municipal/local; federal). It is sometimes defined as a debt obligation backed by either the entire faith, etc., of the supporting - entity, and/or a specified revenue stream! Clearly, the former is generally safer and more secure, although the latter may yield a higher dividend rate! Municipal bonds issued in your home state give tax-free status on both the federal and state levels, however when issued in other states, only federal taxes are saved. It's also worth noting that, while regarded the safest investment, U.S. Treasury Bonds, Bills, and Notes offer lower rates and are only tax-free in terms of local taxes.
3. Interest paid by banks vs. dividends paid by corporations: Banks pay interest, whereas corporations pay dividends! However, while the Federal Deposit Insurance Corporation (FDIC) guarantees most savings deposits, business earnings are not guaranteed in most situations! One of the main reasons is that companies typically pay a better rate of return. Also, keep in mind that not all organisations are the same, and since any bond is backed by a certain company, the degree of risk might vary dramatically!
4. Real estate: When handled properly, investment real estate can provide an overall return that includes tax considerations/advantages, rent - income, and asset value increase! However, the advantages of this field frequently depend on a range of conditions, while understanding, it rarely provides the level of liquidity that other kinds provide.
It's critical to have a foundation of information in order to improve your chances of choosing the most - personally - rewarding, intelligent investment selections, based on a level of understanding and hiring the best professionals for your circumstances and needs! The more information you have, the better!
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