There are many great books about investing and economy, but to be able to understand today’s complex economy, the one has to either be experienced and skilled in investing and business or just get the right information and apply it. Sounds simple, but how do you know what information is genuine and which isn’t?
That is the best question, because if everything would be that simple as following the spet by step guide for the best investing strategy, then everybody would be doing it, and most of the people would be rich.
But unfortunately, this is not the case.
There are always things that sound simple, especially the new things or the things that people don’t know much about even though they think that they do.
Which leads to the core issue, the lack of Education or wrong kind of education.
In order to achieve success in business or investing, you got to be smart, but more importantly willing to learn new things with passion and determination. Successful people never stop learning.
over the course of my life I read a lot of interesting business and investing books, but they always sounded a little bit too complex and confusing, or really boring to read. You cannot learn from something that is boring you to death, it has to be interesting and catchy in some way.
That’s why I recommend to everyone who truly wants to learn and understand the economy and investing, possibly the best book about investing and business called Principles by Ray Dalio.
The book Principles is written in a way that it’s easy to follow and understand everything. It also opens up the completely new approach to achieve success in life, business, or relationships – mainly all three.
Investing and trading the markets has always been Ray Dalio’s passion since he was a small kid. Today he is responsible for owning the largest and most successful hedge fund in the world, that made more money to their clients than any other hedge funds combined. He developed several investing strategies with minimal risk and maximum return.
To really look at the difference between stocks and bonds you have to understand the basics of each. Definitions make up our world and help us with understanding, so here we go. In common parlance, we can compare a company to a house. When a person buys a house, they have a deed, which is a legal declaration and description of the property. Stocks are like owning a portion of the deed for a company.
So, in a simple example, if a company has a book value of $100,000 and they want to sell 100 shares, the shares might be considered worth $1000 each. In exchange for the share, a shareholder, also known as stockholder, would be entitled to a share of any net profits the company makes. Using our simple example, each shareholder may get 1% of the net profit as a return on their investment. If the company makes no money, there would be no return on investment (ROI). In the event of a loss, the company might be worth only $90,000 and the shares might then sell for $900. This is an overly simplified view, but this is for illustration purposes only.
Using the same scenario, if that same company wanted to raise money, but not sell shares, they might sell bonds. Generally, a bond is considered a loan to the company. (Bonds are also issued by municipalities, from local governments to federal governments.) This loan might be that the company will sell you a $1,000 bond for $800 and the bond would be worth $1,000 when it matures (in 8 to 10 years typically.) During the maturing, the company also agrees to pay a fixed amount every six months. The fixed amount usually is tied to the current interest rates but does not have to be.
So what are the advantages and disadvantages of each of these? Unless a company goes bankrupt, you are guaranteed to have a return on investment with a bond. They are more stable, predictable and safer investments.
However, bonds aren’t usually giving you large returns. Another disadvantage is that they are not liquid, and you can pay a penalty for cashing them prior to their due date. Stocks, on the other hand, can give you greater returns, but carry a higher risk with no guarantees. They are more liquid, so if you need to get to your money more quickly, there are no consequences like penalties, just the standard fees involved in your transaction.
In other words, a bond is like a tortoise and a stock like a hare. Remember though, sometimes it is rabbit season, and your hare may be scalped.
Normal advice given to investors is to have more money in the higher risk stocks while you are younger and to gradually shift to the more conservative bonds as you get closer to retirement.