Wednesday, 27 August 2014

Invest It

After our lesson with the first three foundation of money skills. Let's move to the next level of the foundation of financial freedom which is INVEST.

After you established the emergency funds, then save at least the 20% of your income to financial instruments that could give you high potential return  higher than the inflation rate and interest rates from the banks. You can choose from stocks, bonds, mutual funds and certificate of deposits. For the purpose of this blog, our main focus is the stock market.

Why invest in the stock market?
There is only one reason "Our country is moving to a development stage in which potential growth in the long run can be seen" (GPD growth at 6.4% in 2Q14. ). Let's appropriate the opportunities to be rich thru stock market investing. I don't want to exaggerate it but to be rich in this field will take time and effort. The process will be painful and not a smooth road. Mistakes and failures in choosing the right stock will happen but the learnings along the journey will not be paid by the amount of potential money loss.

2 ways to earn from the stock market:
1. Capital Appreciation or Price Appreciation.
2. Dividends (Cash, Stocks, Property).

Capital Appreciation or widely known as price appreciation, the stocks increased in value or market price or exceeding the initial cost of investment or buy price. Many are buying the stocks believing that  there is a potential growth and expected return, you are investing on the trusted board of management and expansion plans of your chosen companies.

Dividends are the company's portion of earnings to be distributed to shareholders, dividends can be in the form of cash, stocks and property. Blu chip companies usually distribute yearly dividends. If you are a value investor, you should choose companies with high dividend yields.

Stock market can give you a passive income thru dividends and capital appreciation but it is not guaranteed. The burden of earning passive income on this field is at your hand. The first thing to do is research your chosen stocks and invest only to those companies that you understand or you have a knowledge on that specific field.

Sincerely yours,

NEWBIE Mentor

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