by Amy Lawson MBA, CDFA®
Whether you are leveraging technology to track your spending or relying on old school skill, you are on the way to mastering the art of living within your means. Congratulations!
So, what’s the next sip? Become a more knowledgeable investor. Regardless of how much you may know about investing, there is always room to learn more. While I’m certain many of you are more than mere beginners, we’ll start with the basics anyway. In my opinion, it is better to hear something twice than to never have heard it.
What are the basics? To quote one of my favorite musicals (or at least partially): “Let’s start at the very beginning, it’s a very good place to start. When you read we begin with A-B-C,” but when you invest, there is no Do-Re-Mi. There are stocks, bonds, and cash. They may be packaged several different ways, but, in the end, there are stocks, bonds, and cash.
Let’s start with stocks… Stocks represent ownership in a company and are purchased in “shares.” Any entity, be it a person or an organization, that own shares is called a shareholder. The price of a share of stock can fluctuate daily and may sometime fluctuate wildly, depending on the type of company. For example, the share price of a technology company, such as IBM, may fluctuate more in the short term than the share price of BB&T. Therefore, the shares of IBM are considered to be more VOLATILE, than the share price of BB&T.
Some new to investing often confuse volatility with risk, but they are not necessarily the same. While volatility refers to the potential short-term fluctuation in share price, risk refers to the likelihood we could lose our… um… assets.
An investment may be volatile without being particularly risky, and vice versa. For example, we could buy some shares of a financially-sound company in a stable industry and while the share price may fluctuate greatly in the short term, chances are we could make money over time. Conversely, we could pan for gold in some obscure creek in our homeland and while our investment may not be volatile, it is for sure risky because we would likely lose our… um… assets.
One of the major benefits of owning stocks is the potential upside; we tend to buy them for the purpose of growing our money over time. While stock ownership has its privileges, it also has its downside. For example, in the event the company goes under, shareholders are last on the list when it comes to divvying up the spoils.
Does this mean we should avoid stocks? Not necessarily. Stocks have out-performed bonds and cash historically. However, stocks should only be considered IF they are right for you. It depends on your goals, your sensitivity to the short-term volatility of the stock market, and, of course, your time horizon. Do you see the common thread in all of this? It’s YOU. This is all about YOU, don’t you love it? Raise your glass…Here’s to you!
Until next time…
This week’s wine recommendations come from Roots Run Deep Winery in Napa, California.
RED LOVERS: Educated Guess, Cabernet Sauvignon, 2013. “…rich, ripe, and well-structured with flavors of juicy blackberry and cherry fruit, creamy milk chocolate, and dusty notes all tied together with a toasty oak finish that is in a word… lingering.”
WHITE LOVERS: Educated Guess, Carneros Chardonnay, 2013. “…tropical fruit flavors…creamy notes, toast, spice, and vanilla without being overdone in any way.”
Another reason to try Educated Guess… Roots Run Deep uses its knowledge, intuition, and years of experience to make the best possible wines. In life, we do the same to make the best possible choices; we learn all we can, we do all we know, and then we let go. Repeat.