stocks

Since 1926, the average annual return on stocks has exceeded 10%. The return on bonds has been 5% and on cash reserves less than 4%. If you invested $167 per month ($2,000 per year) for 25 years, you would have $221,581 at 10%, $99,450 at 5% and $85,860 at 4% earnings. With higher returns through the stock market, it is no wonder that more investors buy stocks and mutual funds each year. Although stocks offer the potential for higher returns over bonds and cash reserves, they also expose you to more risk, particularly in the short term. Remember that historical average returns do not assure future returns.

Stock is a security that represents ownership in a corporation. A bond, by contrast, is debt issued by the company, basically an IOU. Bondholders are lenders; stockholders are owners. In the event of trouble, bondholders have a superior claim, but they don't share in the company's success the way stockholders do.

When you buy company stock, you can make money in one of two ways: through dividends, or through price appreciation when you sell your shares. The dividend payment you receive reflects your share of the company's profits. Dividends are usually paid quarter

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This makes the stocks more difficult to research and more prone to price manipulation than larger, better-established issues. The funds are professionally managed, which logically should add to your investment returns in the long run.

Defensive stocks - Defensive stocks are from companies whose earnings tend to remain fairly stable or perhaps even rise when the economy is slow. Their earnings often suffer when the economy is in a slump, but rise steadily when the economy begins to recover. (Example -Pfizer (PFE): One year return on investment - 20%; five year return on investment - 300%; annual dividend yield 0. With more than 7,000 mutual funds now in existence, it's a pretty safe bet that you can find at least one that suits your individual investment goals. There are several advantages to investing in a mutual fund rather than in individual securities. Penny stocks are usually issued by small, relatively unknown companies and are lightly traded. (Example - Intel (INTC): One year return on investment - 5%; five year return on investment - 500%; annual dividend yield 0. Steelmakers, automakers, homebuilders, paper mills and airlines are in cyclical industries.

Value stocks - Value stocks typically have a lower price-to-earnings ratio, a lower price-to-book ratio, and pay more dividends than growth stocks. Preferred stock pays a fixed dividend, has a preferred claim over the common stock to the dividends of the company and is given preferential treatment if the corporation is liquidated. In future articles I will discuss researching, analyzing, and buying as well as different terms used in the stock market trade. The "blue-chip" moniker comes from casinos, where blue chips are the typically the ones with the highest value - and most expensive to purchase.

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