If you’re just starting to build your investment portfolio, the terms used in the financial world can feel like a foreign language to you. Confusing investing terms can make it difficult for individuals to begin investing confidently. Sorge CPA is here to help you understand common investing terms so that you can begin investing wisely and with confidence.
Different Types of Investments
Common Stock and Preferred Stock
You can invest your money using stocks, bonds, and property. But what do each of these terms mean? Common stock is a share in a corporation. This corporation must be legally formed in order to offer common stock as an investment option. Preferred stock is a different class of stock ownership. With preferred stock, stakeholders are able to have guaranteed larger dividends. If a company goes through the liquidation process, preferred stock shareholders get paid before common stockholders.
Bonds
A bond is essentially an agreement stating that you will loan money to a company or the government in order to be repaid the principal amount in full, as well as interest in the meantime, leading up to the maturity date of the bond. Bonds come in many shapes and sizes from different entities from corporations to government entities. Government bonds include treasury bonds and tax-free municipal bonds. Corporate bonds allow citizens to help corporations function and expand. There are also investment-grade bonds. Bond funds are a good option for investors who may not be interested in investing in individual bonds.
Property
Real estate can also be viewed as an investment. Owning a house or a plot of land means that you own real estate. Land or property can be used by the owner or leased out to others in exchange for payment.
Margin of Safety
When you get into the world of investment, you’ll likely hear the phrase “margin of safety” often. Margin of safety refers to the room you give yourself to make investment mistakes. The difference between the sticker price of a company’s shares and the price you actually want to buy it for is the margin of safety.
Sticker Price
The sticker price of a business is the value of the business despite its selling price on the market. A good rule of thumb is to try and buy businesses at 50% of their sticker price.
The Stock Market
The stock market is the collection of all public companies which sell pieces of their company in the form of stock. If you want to have success in the stock market, you should choose companies that you believe to be durable and capable of lasting at least ten to fifteen years.
Sorge CPA and Business Advisors in Wisconsin
If you’ve got more questions about investing, accounting, or taxes, Sorge CPA is here to help. Big or small, a cornerstone of our firm is providing each and every client with responsive and highly personalized service delivered by our experienced partners and team of more than 60 specialists.
In addition to providing personalized service and a quality work product, you will also benefit from valuable insights and recommendations delivered by a team with years of experience and expertise helping clients increase efficiency and strengthen financial controls. Our breadth of services is on par with the larger firms allowing us to provide organizations nationwide with the broad resources and expertise to help them stay at the forefront of their industry.
Contact us today to learn more about how we can help you!