It All Comes Down to Debt or Equities
As far as I know, there are but two ways to make money in investing; you either buy things and hope they appreciate, or you lend money and hope people pay you back and pay you interest for the trouble. In other words, all investments are either equities or debt.
It really does not matter what you want to invest in; stocks, real estate, mutual funds, insurance, gold… you pick it and it is either debt or equities. Why is this so important to understand? Because I sincerly believe that most people do not understand what they are investing in.
When you buy a stock, just what are you buying? What do buying growth mutual funds and flipping houses have in common? Why can you let your house (which you assured everyone was an “investment” when you bought it) sit for years and never check the value, yet you check the value of the mutual fund you put in your IRA every day on Yahoo Finance?
Most investors tend to develop a preference for one or the other; folks who would never touch a stock will own Treasury Bonds and hold them for years. Other folks (like me) are equities junkies and see no reason anyone would ever want to own a bond. Over the next few days, I will tackle the subjects of Equities and Debt, explaining the fundamental principles behind each and why you should care.
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December 14th, 2007 at 5:33 pm
I can barely wait for you to explain this!
December 14th, 2007 at 6:07 pm
[…] As I mentioned last time, equity essentially means ownership. If you buy your house for $100,000 and put $20,000 down, you have $20,000 of equity. If, over a year or two, the house appreciates by $10,000 and you pay another $10,000 in principle payments, you now will have $40,000 in equity (even though you have only invested $30,000, effectively giving you a 25% return on your money. This is what keeps us equity nuts up at night…). […]