INVESTING 101

thebloommagazineof
Jun 3, 2023
4 min read

A simple guide for confused teenagers of the types of investments you can make once you are of age.

It is a well-known fact that investing finds itself in the future plans of every business interested teenager of today, which is honestly very impressive. As intelligent as we are, the same amount we are clueless, which is why in this article I will be breaking down the types of investments you should start thinking about diving into once you are 18.

*you can click on each of those and it will take you to their specific section😉

DIVIDEND STOCKS

-are the companies’ distribution of corporate earnings to shareholders, either in cash or additional shares, as decided by their board.

Most companies who prefer and prosper using dividends are large and established, with predictable and stable profits. Most common are oil & gas, banks, healthcare & pharmaceuticals and utility companies.

How it works? Well, a company that is trading $100 per share declares a $5 dividend on the announcement date, after the news become public, might have an increase of share price of $5, now hitting $105.

INDIVIDUAL STOCKS

-are the actual ownership shares that one can buy from a company, a more risky and unpredictable game than the previous stock option.

If you invested in 100 shares of a public company, you would have a percentage of ownership in that company. Companies initially go public to offer shares to investors in order to raise capital to start, expand and grow the company. Once the initial shares are purchased, they can then be bought and sold on an exchange or electronically between buyers and sellers, usually facilitated by stock brokers.

What is the difference between dividend and individual stocks? Growing companies pay lower to no dividends while valuable and stable companies generally pay dividends. The main activity of individual stocks is the actual trade, purchase or sell of the shares. Individual stocks have unlimited growth potential, however, they also have loss potential. If a company were to go bankrupt, the stock investor could very likely lose their entire investment, and as we all know, no matter how big a company is, it is not safe from bankruptcy.

With this cheeky gamble of an investment, you are very much required to spend more time monitoring your portfolio to ensure that the companies you've invested in aren't having business problems that could wipe out your bet. You also need to monitor industry and economic trends. You're your own portfolio manager, so you must spend the time to ensure you're not in a bad position, but most important: DON’T PANIC!

MUTUAL FUNDS

-are the gateway to retirement, in my opinion. It is a long-term investment plan that pools assets from shareholders to invest in securities like stocks, bonds, money market instruments etc., and are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.

Mutual funds give small or individual investors access to professionally managed portfolios of equities, bonds, and other securities. Each shareholder, therefore, participates proportionally in the gains or losses of the fund. Mutual funds charge annual fees, expense ratios, or commissions, which may affect their overall returns.

INDEX FUNDS

-are a type of mutual fund or ETF (=exchange-traded fund: funds that trade on exchanges) with a portfolio constructed to match or track the components of a financial market index (=a hypothetical portfolio of investment holdings that represents a segment of the financial market). An index mutual fund is said to provide broad market exposure, low operating expenses, and low portfolio turnover.

My opinion intruding again, I view index funds as the best option for you if you want to feel like an active investor at the beginning of your “career” while also allowing you to study the market for the day you will be ready to invest directly into stocks, not through a company, but individually. Index funds seek to match the risk and return of the market based on the theory that in the long term, the market will outperform any single investment.

CRYPTOCURRENCY

-is a form of digital asset based on a network that is distributed across a large number of computers, secured by cryptography which makes it nearly impossible to counterfeit or double-spend.

A big attribute of cryptocurrencies is that they are theoretically immune to government interference or manipulation, because of their decentralized structure.

They present many advantages, like the removal of a third party, therefore the ease of transaction between two parties and can generate profit. Disadvantages lie in the use of cryptocurrencies in criminal activity, expensive to actually earn a recognizable profit, and even though the blockchain is very safe, there have been cases of hacked exchanges and full wallets, and the high volatility of prices.

REAL ESTATE

- is an investment strategy that can be both satisfying and lucrative. Unlike stock investors, real estate owners can use leverage to buy a property by paying a portion of the total cost upfront, then paying off the balance, plus interest, over time.

One of the primary ways in which investors can make money in real estate is to become the landlord of a rental property, then there come house-flippers who buy undervalued real estate, fix it up, and sell it, then there real-estate investment groups that are more of a hands-off approach that doesn’t really concern you as an individual (for now).