Stocks 101: A Beginner’s Guide to Investing

Stocks are one of the most popular investing tools in the world, yet there is so much uncertainty surrounding them. If you don't know the purpose of stocks, or the different types of stocks available, don't worry. You are not alone.

Luckily, the financial advisors at American Investment Planners, LLC are here to offer their professional insight. Here are some of the stock market basics every investor should know:

What are stocks?

Stocks are an equity investment that represent partial ownership of a corporation. If a company is divided into 1,000 shares, and you own one of them, you effectively own 1/1,000th of that company.

What types of stocks exist?

There are two main types of stock, common and preferred.

• Common stocks: owners are entitled to vote and may (or may not) receive dividends.
• Preferred stocks: owners usually do not have voting rights, but have priority over common stockholders when it comes to dividends and asset liquidation.

Why do investors buy stocks?

There are many reasons why an investor may purchase a stock, but three of the most popular are:

• Capital appreciation: occurs when the stock rises in price, increasing the net worth of the owner’s portfolio. When a stock increases in value, the investor may look to sell it for a profit, or continue to hold onto it in hopes of continued success.
• Dividends: some companies regularly distribute their earnings to stockholders in the form of dividend payments. The more shares you own, the more money you will receive.
• Company control: stockholders have the ability to vote on management issues at annual shareholder’s meetings. The more shares you own, the greater your influence.

Want to get started investing?

Investing in stocks involves risks, including loss of principal. Before you take a plunge into the stock market, it’s a good idea to sit down with a qualified financial advisor and develop a sound investment strategy. The professionals at American Investment Planners, LLC have decades of experience, and will work with you to craft a plan that meets your needs, goals, and budget. To schedule a meeting with one of our consultants, please call (516) 932-5130 or email info@americaninvestmentplanners.com.

Breaking Down the Three Major Stock Indexes

If you have ever read an investment article or tuned into a financial program on TV, chances are good you’ve already been exposed to some of the major stock indexes. While there are literally dozens of them, today we focus on three of the most prominent examples: the Dow Jones Industrial Average, the NASDAQ Stock Market Composite, and the S&P 500.

Dow Jones Industrial Average

The Dow Jones Industrial Average (DJIA), often referred to simply as, “The Dow,” is one of the oldest and most well-known stock indexes in the world. It was invented by Charles Dow and Edward Jones back in 1896 to serve as a representation of the greater U.S. economy. When the index first launched, it included 12 companies, almost all of which were industrial.

Today, the DJIA includes stocks from 30 companies in all different sectors, which collectively make up about 25% of the total market. These companies are household names and leaders in their industry. Examples of companies included in the Dow are General Electric, IBM, and Coca-Cola. It is a price-weighted index, meaning stocks with higher share prices have a greater weight in the index.

While the Dow Jones has undergone many changes in its history, one thing remains the same: it is commonly used to interpret the American economy as a whole.

NASDAQ Stock Market Composite

The NASDAQ Stock Market Composite is comprised of more than 5,000 stocks listed on the Nasdaq stock exchange. Although it covers companies in many different industries, it is heavily weighted towards technology stocks, which make up more than 40% of its individual securities. Unlike the other stock indexes, the NASDAQ is not limited to U.S.-based companies.

According to Investopedia, the index is calculated continuously throughout the trading day, but it is reported once per second, with the final confirmed value being reported at 4:16 p.m. each trading day.

Standard & Poor’s 500

The S&P 500 is widely regarded as the most accurate gauge of the marketplace as a whole for two reasons. First, it is comprised of 500 widely-traded companies, compared to just 30 for the Dow. Collectively, these companies make up about 80% of the market’s total value. There is also a big difference in how individual companies are weighted within each index. The S&P 500 is market-weighted, whereas the Dow Jones is price-weighted. Even though the Dow Jones is more frequently talked about, the S&P 500 will paint a clearer picture of the American economy.

The Bottom Line

By keeping an eye on these indexes and tracking their movements over time, you will begin to get a general idea of the investing public’s attitude towards different companies and sectors. While these indexes are supposed to represent the market as a whole, it is important to remember that they are simply a tool – not the gospel.

If you want to learn more about index investing, speak with one of the financial advisors at American Investment Planners, LLC. To schedule a face-to-face appointment with one of our consultants, please call (516) 932-5130 or email info@americaninvestmentplanners.com.

3 Alternatives to Savings Accounts

Wouldn’t it be great if your money worked as hard as you did? If you’re depositing your paychecks into a traditional savings account, this isn’t the case.

According to the FDIC, the average interest rate for a savings account is just 0.06%. This means you earn just 6 cents for every $1,000 you deposit. Some banks even offer rates as low as 0.01%.

Luckily, other options exist for those looking to maximize their money. These three investments may be more lucrative than a traditional savings account:

Money Market Accounts

Advantages: Money market accounts may offer much higher interest rates than traditional savings accounts. For example, a bank offering a 0.02% interest rate on standard savings accounts may offer a 1.02% interest rate for a money market account. And just like a savings account, your money is insured by the FDIC.

Drawbacks: In exchange for higher interest rates, you will have to restrict your withdrawal activity. Most money market accounts offer limited checking services, with a maximum of 5-10 checks you can write per month. If you can live with these limited withdrawals, money market accounts are an attractive option.

Certificates of Deposit

Advantages: Certificates of deposit, more commonly referred to as CDs, can offer up to ten times the interest return of a traditional savings account. CDs are also fully FDIC-insured.

Drawbacks: When you invest in a CD, you are locking up your money for a predetermined amount of time. CD lengths can range from as little as one month to five years or more. The longer you put your money away, the higher interest rate you will receive. With good planning, you can spread your money across CDs of varying lengths to maximize liquidity.

Investing in Stocks

Advantages: When you purchase a stock, you are purchasing a small share of a company. When the company performs well, your stock may rise in value. Some companies even pay out dividends to their shareholders at the end of each year.

Drawbacks: Unlike money market accounts and CDs, which are more “set it and forget it” approaches, investing in the stock market takes diligence and skill. If it were easy, everyone would be a millionaire. Luckily, professional financial advisors are available to offer counsel and help you through the process.

If you are looking to maximize your investments, look no further than American Investment Planners, LLC. Our team of professional consultants will sit down with you, listen to your needs, and formulate a customized investment strategy designed to meet your individual goals.

To schedule an appointment with one of our advisors, please call (516) 932-5130 or email info@americaninvestmentplanners.com.