what is the best and how they work: Bonds or stocks?

Question

How much money do i need to start?
in which one i can use my earn money anytime?
any web site or book to look forward?

thanks

Answer 1

I'll try and give you a quick and dirty overview:

Stocks: A stock is a partial ownership stake in a company. For example there are currently 311 million shares of Google stock; if you buy one share of stock in the company you'll own one 311 millionth of Google. As an owner of the company you are entitled to either a percentage of the company's profits (paid out in a dividend) or to have the company reinvest those profits in a way that is advantageous to you (ie they build a new factory or open new stores to make more money for you down the road.)

Bonds: Essentially a loan made by the investor to somebody else. If the government for example needs to borrow money they issue bonds-- you give the govt (or whomever is issuing the bond) a certain amount of money which they pay back to you at the end of a set period, plus interest every year the bond is outstanding. So if you buy a 10 year government bond for $1000 when interest rates are 5% you'll recieve $50 a year for ten years at the end of which your initial $1,000 will be given back. (Note that the actual repayment method can be different, but this is the basic idea). You get $1500 back from a $1000 investment. Bonds can be resold (ie if you are the person who actually loaned the money you can sell the obligation to someone else.)

Bonds are considered safer than stocks (they are less volatile and you are less likely to lose money), however stocks tend to make more money over the long term. Generally I'd recommend owning stocks unless you need the money in the very near future (for example to pay for college) in which case a safer investment may be a good idea.

In order to invest you need to open a brokerage account. You can open one online (www.scottrade.com, www.tradeking.com, and there are others.)

Personally I'd recommend buying exchange traded funds. These are mutual funds that trade on stock markets and allow you to own a little stock in a lot of companies easily
(which eliminates the risk of picking a bad stock). Two examples that track the S&P 500 (a listing of the largest US companies) are the SPDR fund (SPY) and the iShares fund (IVV). I wouldn't recommend buying individual stocks unless you enjoy investing and have a lot of time to do research.

You can find a lot of books and websites that explain basic investing. Just google investing basics and I'm sure you'll get lots of info.

Good luck.

Answer 2

Adam gave you a pretty good answer. I do have a few comments though.

Books: start with "Investing for Dummies" a good basic book that will explain the concepts. About $12.

Most young people think stocks are best because over the long term they tend to outperform bonds by about 6% annually on average. There is more risk in stocks, but with a diversified portfolio and over a long period the risk tends to be mitigated.

Mutual funds are a great way for a beginning investor to get started. Or index funds. A way to buy a diverse portfolio inexpensively. You will learn more about mutual fund in that book.

Using the money any time. That can be a real problem when you invest. About the time you want to use the money, that is probably the time that your investments have taken a temporary downturn. Just happens that way. If you think you might have an immediate need for the money, it should be placed into a money market fund where it will be readily available. That is the only alternative. In any respect, one should always have ready cash available for emergencies.

Answer 3

This is quite an intricate and important question to be asking on here. The future of your life is at stake, man. You should definitely talk to an investment professional, and make it a reputable one, try to get a referral from someone you know that has a lot of money invested already. Hopefully they can point you in the right direction. Good Luck!