- Basics of Investing for Solopreneurs, Ep # 36 Gabe Nelson, CFP 11:00
You probably have investments but do you really know what they are? How well versed are you in the basics of investing? As a solopreneur, you must rely on yourself to create a paycheck, and you should also understand the basics of investing to ensure that your money is working to help you achieve your goals.
On this episode of Solopreneur Money, you’ll learn about stocks, bonds, and mutual funds by way of cookie jars, high school students, and auto purchases. These analogies may sound a bit strange, but after listening to this solopreneur podcast you’ll have a better understanding of what these investment vehicles are.
You will want to hear this episode if you are interested in…
- Learning exactly what you are investing in [2:42]
- How high school students are like mutual funds [4:24]
- Discovering how bonds are like financing a car [7:40]
How a mutual fund is like a cookie jar
Did you ever have a cookie jar in your kitchen when you were a kid? When I was growing up our cookie jar had all kinds of different cookies. You never knew what you were going to get.
When you own a mutual fund you own pieces of different companies–different stocks. So I like to compare mutual funds to cookie jars. Like my childhood cookie jar, a mutual fund contains many types of goodies inside. Do you know what’s in your cookie jar?
How stocks are like high school students
Stocks are classified in several ways. It can be confusing to understand the various ways that stocks are classified but comparing them with high school students can help. Just like high schools have freshmen, sophomores, juniors, and seniors, stocks are also separated into different categories.
Small-cap stocks can be compared to freshmen. They aren’t established yet and can be volatile. Their success or failure is yet to be determined.
Mid-cap stocks are like sophomores–they are no longer as volatile as freshmen. Mid-caps are a bit more mature and less risky than small-cap stocks.
Large-cap stocks are similar to juniors in high school. They are on the path to seniority.
Just like seniors, mega-cap stocks are well established and looking ahead toward the future.
Did your high school have foreign exchange students? Those foreign exchange students can represent international stocks.
Bonds are like car loans
Now that you know what stocks are let’s move on to bonds. Bonds are debt issued by a company and are essentially a loan that you are giving that corporation.
The last time you bought a car you probably financed it. If you have good credit you got a low-interest rate but if your credit isn’t the best then, chances are, you had to settle for a high-interest rate. The same is true for bonds.
Bonds with low-interest rates have good credit and they can pay back their loan over a short period of time. If the company has poor credit the bonds they issue are called junk bonds and these have a high-interest rate.
Learn to master your finances
It’s time to take stock of what’s in your cookie jar. Take a look at your investments to see where you stand. Do you have same-aged students or same-aged loans? It is important to have a varied portfolio. You’ll learn more about diversification in future episodes, so be sure to subscribe so that you can have the latest Solopreneur Money in your inbox.
If you need help mastering your finances shoot me an email so that we can get started creating freedom so that you can build the life you want.
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