Global Industry Classifications
The categorical industry classification is a system used to group all businesses based on the products/services they provide. This new organization system helps compare different industris, analyze, and support research.
Some sectors have qualities that may make certain companies more appealing. Specifically, the sector of Industrials goes up & down along with the economy. If you are looking for safer choices it's typically better to buy companies that fall into utilities, consumer staples(things needed to live), consumer defensive, and healthcare.
Here is a website that further explains how it is divided. LINK
MSCI, 2024
Private Equity:
Private equity is very tricky because you need connections to invest in it. I'm assuming most of the people reading are still rookies, but I still believe this is something you should know. When thinking of Private Equity picture it as an older baby. These companies are not publicly traded on the stock exchanges. This works to increase the companies profitability and the companys operations. These investments are typically lomg-term and not easily sold. Along with this it comes with the potential of heavy debt. On the other hand, there is a big potential for high returns-bigger compared to public stock markets.
VS.
Venture Capital:
Venture capitalist can be considered a baby. These investments are specifically for early stage start ups or small businesses with high growth potentials. These investors are typically wealthy individuals, hopefully you will get there soon! These are another high risk/high reward investments.
Initial Public Offering (IPOs):
Companies mainly shift from private equity to a public comapny to increase the stocks liquidity. When they go public company's must go through am initial IPO. This means that the company starts selling shares to the public for potential expansion, to pay off debt, an other business purposes. These company's are then on the stock exchange and are required to abide by strict reporting rules.
ETFs
ETFs are a way top trade indices like stocks-instead of buying each individual stock in the index and manually trading each one. Buying an ETF automatically sells and buys stocks in the index when it is removed or added. Buying ETF is considered "passive investing" because not much thinking is needed when investing- you can let these investments sit in your portfolio for years and just keep letting it grow. When indexing you can keep adding the same amount into the index every month which will eventuallygive you a good average price. This is called cost averaging.
Specific Indcies:
- S&P 500(SPY):
- A basket of the top 500 stocks in te U.S. based off their market caps
- A larger company like Apple will affect it more than a smaller company
- A basket of the top 500 stocks in te U.S. based off their market caps
- Dow Jones Industrial Average(DJIA):
- Always contains 30 companies(always changing)
- Typicall large/well known. Sometimes refered to as "blue chips"
- Nasdaq 100(QQQ):
- Also considered to be "blue chips"
- Mostly technology based
- contains companies like Apple, Google, Amazon, etc.
In a bear market it is considered to be the best time to invest in an index. There is a lot of negative thinking during this time. By investing in a bear market you will be able to buy more shares of a stock for the same amount if the prices were higher.
Stocks VS. Bonds
Stock | VS. | Bonds |
---|---|---|
Ownership in a company | Meaning | Loans made by investor to Governemnt, companies, or other organizations |
Payed with dividends. Not guaranteed. | Returns | Payed through interests. Guaranteed. |
Receive voting rights in a company. | Benefits | Low risk. Tax benefits. |
Stocks-
When investing in stocks it is important to analyze the market too. This is important because stocks typically move with the market. Specifically, you can look at the stocks beta; this shows how much it truly moves with the market. It is important to look at companies financial statements too, this will break down what the company is spending their money on and their profits. Stocks are usually seen to be better for long-term due to the potential for compounding returns over time. Learn your risk tolerance prior to buying stocks.
Bonds-
Bonds are best suited for people that have a low risk tolerance and want a guaranteed return. Interest rates are the main risk factor with bonds. (The longer maturity the more subject bonds are to change due to interest rates). If interest rates rise, prices fall, making the payout less.
Stock Types
- Common Stocks
- These stocks give people ownership in a company and allows investors to share in a companys growth and profits. A shareholder may receive dividends though they are not guaranteed. However, there is a possibility of losing value due to the company underperforming.
- Value Stocks
- A stock that is priced lower than it's considered worth based on the company's financial performance. These are bought because investors hope the market will see the company's true value and that the price will rise. These are typically from stable and established companies and they may pay dividends.
- Growth Stocks
- A stock that is expected to grow at a quicker rate than the average market does. The companies reinvest their earnings to fuel further growth-this means dividends are paid typically.
- Prefered Stocks
- A preferred stock is similar to a common stock but is given priority over common stock when receiving dividends and payments in case the company goes bankrupt. On the other hand, you don't usually have voting rights. They pay fixed dividends which makes them more stable, but has less potential for price growth, unlike common stocks.
Types of Orders
- Market Order
- An order to buy/sell a stock at the best available price immediately. It ensures that the proces will be executed but does not guarantee a specific price.
- Limit Order
- An instruction that says to buy/sell at a specified price or better. This helps control the prices at which investors trade to potentailly avoid portfolio damage form market swings. Brokers may charge a higher fee because of their complexity. These orders will not be executed immediately or at all because of the picked stock price.
- Stop-Loss Order
- This order is a risk managment tool that tells a broker to buy/sell at a specific price. This protects an investors investments by potentially limiting their losses.
Considering Taxes
Taxes plays a key role when investing as it can affect your overall return.
Capital Gain Taxation - The profits made from selling a stock are taxed(i know it stinks)
Short-Term Gains(investments held less than a year): These are taxed at the ordinary income rate
Long-Term Gains: Taxed at a lower rate
Dividends - These are taxed as an income, however, qualified dividends may have a lower tax rate
Tax Advantaged Accounts - There are investment accounts-401(k) and IRA- which allow tax-deferred/tax-free growth; this encourages long-term investing.