They’re words you hear on all the different finance updates we get across our platform.
To some, their meaning is quite clear. To others, it’s not so straight forward.
For everyone, they’re what we use to maximise our investment portfolio.
The breakdown of shares
The stocks of a company are traded through the selling of shares.
When we hear the word ‘share’ in terms of finance, we don’t want to think of kindergarten manners. We see them as a way of generating wealth. We see them as a line on a graph that creeps higher and higher — ideally, anyway.
And technically, we’re not wrong. Share prices go up and down. ASX graphs show these fluctuating prices. People do generate wealth from them.
But those kindergarten kids might be on to something as well…
See, when we buy a company’s shares, we are in fact, buying part ownership of that company. So we’re sharing their success. We’re getting a slice of their pizza.
Unfortunately, we’re also sharing their failures. So if the pizza falls on the floor, we get nothing, even though we chipped in for it.
The trick is to invest in the companies that know how to hold a pizza box properly.
To stay on this pizza metaphor, sometimes a company really wants to start catering, but they just don’t have the dough — pun completely intended.
In this case, they might issue a bond. This is a fixed income investment, where the investor lends money to an entity to borrow. An interest rate is agreed upon, as well as a time frame within which the loaned funds must be returned. This is called the maturity date — and it has nothing to do with puberty.
Investors can use bonds to construct a well-rounded, secure portfolio, provided they make the right calls.
And that’s where we come in…
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