Friday, May 2, 2008
Stocks vs. Bonds: Differences and Risks
In the world of investments, you’ll often hear about stocks and bonds. They are both feasible forms of investment. They allow you the opportunity to invest your money with a specific company or corporation with the possibility of future profits. But how exactly do they work? And what are the differences between the two?
Bonds
Let’s start with bonds. The easiest way to define a bond is through the concept of a loan. When you invest in bonds, you are essentially loaning your money to a company, corporation, or government of your choosing. That institution, in turn, will give you a receipt for your loan, along with a promise of interest, in the form of a bond.
Bonds are bought and sold in the open market. Fluctuation in their values occurs depending on the interest rate of the general economy. Basically, the interest rate directly affects the worth of your investment. For instance, if you have a thousand dollar bond which pays the interest of 5% yearly, you can sell it at a higher face value provided the general interest rate is below 5%. And if the rate of interest rises above 5%, the bond, though it can still be sold, is usually sold at less than its face value.
The logic behind this system is that the investors deal with a higher rate of interest then the actual bond pays. Thus, the bond is sold at lower value in order to offset the gap. The OTC market, which is comprised of banks and security firms, is the favourite trading place for bonds, because corporate bonds can be listed on the stock exchange, and can be purchased through stock brokers.
With bonds, unlike stocks, you, as the investor, will not directly benefit from the success of the company or the amount of its profits. Instead, you will receive a fixed rate of return on your bond. Basically, this means that whether the company is wildly successful OR has an abysmal year of business, it will not affect your investment. Your bond return rate will be the same. Your return rate is the percentage of the original offer of the bond. This percentage is called the coupon rate.
It is also important to remember that bonds have maturity dates. Once a bond hits its maturity date, the principal amount paid for that bond is returned to the investor. Different bonds are issued different maturity dates. Some bonds can have up to 30 years of maturity period.
When dealing in bonds, the greatest investment risk that you face is the possibility of the principal investment amount NOT being paid back to you. Obviously, this risk can be somewhat controlled through the careful assessment of the companies or institutions that you choose to invest in.
Those companies that possess more credit worthiness are generally safer investments when it comes to bonds. The best example of a “safe” bond is the government bond. Another is the blue chip company bond. Blue chip companies are well-established companies that have proven and successful track records over a long span of time. Of course, such companies will have lower coupon rates.
If you’re willing to take a greater risk for better coupon rates, then you would probably end up choosing the companies with low credit ratings, companies that are unproven or unstable. Keep in mind, there is a great risk of default on the bonds from smaller corporations; however, the other side of the coin is that bond holders of such companies are preferential creditors. They get compensated before the stock holders in the event of a business going bankrupt.
So, for less risk, choose to invest in bonds from established companies. You will be likely to cash in on your returns, but they will probably not be very large. Or, you can choose to invest in smaller, unproven companies. The risk is greater, but if it pays off, your bank account will be greater, too. As in any investment venture, there is a trade-off between the risks and the possible rewards of bonds.
Stocks
Stocks represent shares of a company. These shares give part of the ownership of the company to you, the share-holder. Your stake in that company is defined by the amount of shares that you, the investor, own. Stock comes in mid-caps, small caps, and large caps.
As with bonds, you can decrease the risk of stock trading by choosing your stocks carefully, assessing your investments and weighing the risk of different companies. Obviously, an entrenched and well-known corporation is much more likely to be stable then a new and unproven one. And the stock will reflect the stability of the companies.
Stocks, unlike bonds, fluctuate in value and are traded in the stock market. Their worth is based directly on the performance of the company. If the company is doing well, growing, and attaining profits, then so does the value of the stock. If the company is weakening or failing, the stock of that company decreases in value.
There are various ways in which stocks are traded. In addition to being traded as shares of a company, stock can also be traded in the form of options, which is a type of Futures trading. Stock can also be sold and brought in the stock market on a daily basis. The value of a certain stock can increase and decrease according to the rise and fall in the stock market. Because of this, investing in stocks is much riskier than investing in bonds.
The Wrap-Up
Both stocks and bonds can become profitable investments. But it is important to remember that both options also carry a certain amount of risk. Being aware of that risk and taking steps to minimize it and control it, not the other way around, will help you to make the right choices when it comes to your financial decisions. The key to wise investing is always good research, a solid strategy, and guidance you can trust
Bonds
Let’s start with bonds. The easiest way to define a bond is through the concept of a loan. When you invest in bonds, you are essentially loaning your money to a company, corporation, or government of your choosing. That institution, in turn, will give you a receipt for your loan, along with a promise of interest, in the form of a bond.
Bonds are bought and sold in the open market. Fluctuation in their values occurs depending on the interest rate of the general economy. Basically, the interest rate directly affects the worth of your investment. For instance, if you have a thousand dollar bond which pays the interest of 5% yearly, you can sell it at a higher face value provided the general interest rate is below 5%. And if the rate of interest rises above 5%, the bond, though it can still be sold, is usually sold at less than its face value.
The logic behind this system is that the investors deal with a higher rate of interest then the actual bond pays. Thus, the bond is sold at lower value in order to offset the gap. The OTC market, which is comprised of banks and security firms, is the favourite trading place for bonds, because corporate bonds can be listed on the stock exchange, and can be purchased through stock brokers.
With bonds, unlike stocks, you, as the investor, will not directly benefit from the success of the company or the amount of its profits. Instead, you will receive a fixed rate of return on your bond. Basically, this means that whether the company is wildly successful OR has an abysmal year of business, it will not affect your investment. Your bond return rate will be the same. Your return rate is the percentage of the original offer of the bond. This percentage is called the coupon rate.
It is also important to remember that bonds have maturity dates. Once a bond hits its maturity date, the principal amount paid for that bond is returned to the investor. Different bonds are issued different maturity dates. Some bonds can have up to 30 years of maturity period.
When dealing in bonds, the greatest investment risk that you face is the possibility of the principal investment amount NOT being paid back to you. Obviously, this risk can be somewhat controlled through the careful assessment of the companies or institutions that you choose to invest in.
Those companies that possess more credit worthiness are generally safer investments when it comes to bonds. The best example of a “safe” bond is the government bond. Another is the blue chip company bond. Blue chip companies are well-established companies that have proven and successful track records over a long span of time. Of course, such companies will have lower coupon rates.
If you’re willing to take a greater risk for better coupon rates, then you would probably end up choosing the companies with low credit ratings, companies that are unproven or unstable. Keep in mind, there is a great risk of default on the bonds from smaller corporations; however, the other side of the coin is that bond holders of such companies are preferential creditors. They get compensated before the stock holders in the event of a business going bankrupt.
So, for less risk, choose to invest in bonds from established companies. You will be likely to cash in on your returns, but they will probably not be very large. Or, you can choose to invest in smaller, unproven companies. The risk is greater, but if it pays off, your bank account will be greater, too. As in any investment venture, there is a trade-off between the risks and the possible rewards of bonds.
Stocks
Stocks represent shares of a company. These shares give part of the ownership of the company to you, the share-holder. Your stake in that company is defined by the amount of shares that you, the investor, own. Stock comes in mid-caps, small caps, and large caps.
As with bonds, you can decrease the risk of stock trading by choosing your stocks carefully, assessing your investments and weighing the risk of different companies. Obviously, an entrenched and well-known corporation is much more likely to be stable then a new and unproven one. And the stock will reflect the stability of the companies.
Stocks, unlike bonds, fluctuate in value and are traded in the stock market. Their worth is based directly on the performance of the company. If the company is doing well, growing, and attaining profits, then so does the value of the stock. If the company is weakening or failing, the stock of that company decreases in value.
There are various ways in which stocks are traded. In addition to being traded as shares of a company, stock can also be traded in the form of options, which is a type of Futures trading. Stock can also be sold and brought in the stock market on a daily basis. The value of a certain stock can increase and decrease according to the rise and fall in the stock market. Because of this, investing in stocks is much riskier than investing in bonds.
The Wrap-Up
Both stocks and bonds can become profitable investments. But it is important to remember that both options also carry a certain amount of risk. Being aware of that risk and taking steps to minimize it and control it, not the other way around, will help you to make the right choices when it comes to your financial decisions. The key to wise investing is always good research, a solid strategy, and guidance you can trust
Labels: investing in stocks
Trading Stocks Online--Top 5 Secrets to Making Money
Want to make money trading stocks online? If you follow these five simple tips, you'll be way ahead of the pack.
1) Listen to the charts
You may have found a great stock, and it could have the best fundamentals in the world, but here's the truth-- that's not enough! Even if a stock has a million fundamental reasons to go up, it's not going anywhere unless people are buying it. People don't always act rationally, so you can't assume that a stock will behave as it should. That's where technical analysis (chart reading) comes in. By learning to read charts, you can spot stocks that are poised to move up, or conversely, stocks hopelessly headed down. Reading stock charts will allow you to find stocks which actually will move up, not just stocks you think should move up.
2) Use stop losses
No one is ever right 100% of the time. That's just the nature of the game. Even the best stock pickers sometimes pick lemons, but that's not necessarily a problem. Picking losers, which is inevitable, is only a problem if you let them kill your account. You absolutely must set stop loss orders every time you make a trade, otherwise you may wake up and find your entire account decimated. Remember, to make money trading stocks online, you don't always have to pick winners-- your winners just have to be bigger than your losers. You accomplish this by always cutting your losers early, and then letting your winners run.
3) Don't step in front of a speeding train
One of the biggest myths about making money by trading stocks online is that you have to buy low and sell high. That's a very dangerous way of thinking. Why? Because people, searching for stocks to buy low, eagerly buy stocks which are spiraling downward. They hope, often falsely, that soon after they buy the stock, it will turn around, go higher, and then they can sell for a profit. But ask any experienced trader and he'll tell you that stocks which drop precipitously tend to keep dropping. Don't step in front of a speeding train. Instead, find stocks which are healthily moving up and will keep moving up. Think of it not as "buy low and sell high," but "buy high and sell higher."
4) Ignore the people on TV
There is no shortage of media personalities who love to recommend stocks. Follow their advice and you'll become rich, right? Wrong. If you could make millions by following the guy on TV, everyone would be rich. You've got to do your own homework. You see, it's not necessarily that the people in the media don't know what they're talking about. They often do. It's that by the time that information reaches you, it's too late! Think about it...there are professionals who spend all day looking for the next great stock to buy. Do you really think that by the time a stock pick reaches the general public on TV, the smart money hasn't already bought it? Of course it has, and by the time the little guy buys himself, he's left holding the bag. If you want to make money trading online, you've got to think independently. Otherwise, you'll be behind the curve.
5) Don't overpay on commissions
Let's say you start trading stocks online with one thousand dollars. Now let's say you're paying ten dollars per trade. And finally, let's assume you make thirty trades per month. If you do the math, you'll see that you're doomed regardless of how good your stock picks are! People often get so excited about trading stocks online, they forget about all the money wasted on commissions. If you want to be successful over the long term, you have to find a broker with low enough commissions for your trading style. With some brokers charging as low as one penny per share, there's no reason to waste all of your money in fees. In this way, researching online brokers is just as important as researching stocks.
Keep in mind these five tips and you've already set yourself up for success in trading stocks online. Good luck!
Earn $346.77 Per Week Trading From Home With a Stock Trading Software
1) Listen to the charts
You may have found a great stock, and it could have the best fundamentals in the world, but here's the truth-- that's not enough! Even if a stock has a million fundamental reasons to go up, it's not going anywhere unless people are buying it. People don't always act rationally, so you can't assume that a stock will behave as it should. That's where technical analysis (chart reading) comes in. By learning to read charts, you can spot stocks that are poised to move up, or conversely, stocks hopelessly headed down. Reading stock charts will allow you to find stocks which actually will move up, not just stocks you think should move up.
2) Use stop losses
No one is ever right 100% of the time. That's just the nature of the game. Even the best stock pickers sometimes pick lemons, but that's not necessarily a problem. Picking losers, which is inevitable, is only a problem if you let them kill your account. You absolutely must set stop loss orders every time you make a trade, otherwise you may wake up and find your entire account decimated. Remember, to make money trading stocks online, you don't always have to pick winners-- your winners just have to be bigger than your losers. You accomplish this by always cutting your losers early, and then letting your winners run.
3) Don't step in front of a speeding train
One of the biggest myths about making money by trading stocks online is that you have to buy low and sell high. That's a very dangerous way of thinking. Why? Because people, searching for stocks to buy low, eagerly buy stocks which are spiraling downward. They hope, often falsely, that soon after they buy the stock, it will turn around, go higher, and then they can sell for a profit. But ask any experienced trader and he'll tell you that stocks which drop precipitously tend to keep dropping. Don't step in front of a speeding train. Instead, find stocks which are healthily moving up and will keep moving up. Think of it not as "buy low and sell high," but "buy high and sell higher."
4) Ignore the people on TV
There is no shortage of media personalities who love to recommend stocks. Follow their advice and you'll become rich, right? Wrong. If you could make millions by following the guy on TV, everyone would be rich. You've got to do your own homework. You see, it's not necessarily that the people in the media don't know what they're talking about. They often do. It's that by the time that information reaches you, it's too late! Think about it...there are professionals who spend all day looking for the next great stock to buy. Do you really think that by the time a stock pick reaches the general public on TV, the smart money hasn't already bought it? Of course it has, and by the time the little guy buys himself, he's left holding the bag. If you want to make money trading online, you've got to think independently. Otherwise, you'll be behind the curve.
5) Don't overpay on commissions
Let's say you start trading stocks online with one thousand dollars. Now let's say you're paying ten dollars per trade. And finally, let's assume you make thirty trades per month. If you do the math, you'll see that you're doomed regardless of how good your stock picks are! People often get so excited about trading stocks online, they forget about all the money wasted on commissions. If you want to be successful over the long term, you have to find a broker with low enough commissions for your trading style. With some brokers charging as low as one penny per share, there's no reason to waste all of your money in fees. In this way, researching online brokers is just as important as researching stocks.
Keep in mind these five tips and you've already set yourself up for success in trading stocks online. Good luck!
Earn $346.77 Per Week Trading From Home With a Stock Trading Software
Labels: investing in stocks
Thursday, May 1, 2008
Investing in stocks
There have been a lot of books written on how to be a smart investor and how to time the market. In fact, many people make a living on developing a "system" to time the market and then sell that system to other people. While there are a lot of indicators that can tell you when to invest and when to get out, one excellent way to invest is to be a "contrarian investor."
A contrarian investor means that you are doing the opposite of what other people are doing. It takes a certain amount of finesse and "chutzpah" to be a contrarian investor but it can help you make money, and it can keep you from losing money.
Contrarian investing means that you need to buy when other people are selling and sell when other people are buying. For example, during the tech boom in 2000, the person who made money was the person who sold their tech stocks when everyone else was feverishly buying. Likewise, the person who bought Asian stocks during the Asian flu is seeing -- and will see -- an appreciation in that investment because they've bought what other people are selling.
People buy and sell every day, so how do you know what to buy and what to sell? The answer to this question is to go and look at the cover of investing and stock market magazines at your local magazine store. On the cover, you will see the popular industries that people are snapping up like crazy or dumping as quickly as possible. If you own the popular ones, get out. If you don't own the unpopular ones, get in. The popular ones may go up some more, but it will go down because that's what stocks do: they go up and they go down.
By selling when others are buying you are taking profits easily. By buying when others are selling you are snapping up opportunities at a discount. The concept seems crazy, but it works. Why? Because of the herd mentality. Many investors are undereducated when it comes to investing so they simply follow the crowd. Willingly, they buy and buy stocks that go up in price and are shocked when it comes crashing down because they followed the herd and didn't realize that stocks fluctuate.
Is contrarian investing foolproof? No. And no investing philosophy is foolproof. Contrarian investing is not meant to replace quality research and carefully considered transactions. What contrarian investing is meant to do is to help you take profits when they're available and buy cheap stocks when they're available. It's true that some stocks plummet for a reason but if you combine contrarian investing with some research, you'll be able to buy stocks when they are unpopular and ride them back to the top!
A contrarian investor means that you are doing the opposite of what other people are doing. It takes a certain amount of finesse and "chutzpah" to be a contrarian investor but it can help you make money, and it can keep you from losing money.
Contrarian investing means that you need to buy when other people are selling and sell when other people are buying. For example, during the tech boom in 2000, the person who made money was the person who sold their tech stocks when everyone else was feverishly buying. Likewise, the person who bought Asian stocks during the Asian flu is seeing -- and will see -- an appreciation in that investment because they've bought what other people are selling.
People buy and sell every day, so how do you know what to buy and what to sell? The answer to this question is to go and look at the cover of investing and stock market magazines at your local magazine store. On the cover, you will see the popular industries that people are snapping up like crazy or dumping as quickly as possible. If you own the popular ones, get out. If you don't own the unpopular ones, get in. The popular ones may go up some more, but it will go down because that's what stocks do: they go up and they go down.
By selling when others are buying you are taking profits easily. By buying when others are selling you are snapping up opportunities at a discount. The concept seems crazy, but it works. Why? Because of the herd mentality. Many investors are undereducated when it comes to investing so they simply follow the crowd. Willingly, they buy and buy stocks that go up in price and are shocked when it comes crashing down because they followed the herd and didn't realize that stocks fluctuate.
Is contrarian investing foolproof? No. And no investing philosophy is foolproof. Contrarian investing is not meant to replace quality research and carefully considered transactions. What contrarian investing is meant to do is to help you take profits when they're available and buy cheap stocks when they're available. It's true that some stocks plummet for a reason but if you combine contrarian investing with some research, you'll be able to buy stocks when they are unpopular and ride them back to the top!
Labels: investing in stocks
5 Steps to start investing in stocks
STEP 1: LEARN AS MUCH AS YOU CAN ABOUT INVESTING
Read as many books about investing as you can. Make your own decisions on what you are going to use. Learn about discounted cash flow analysis. Learn how to make inferences about management and industries from public information.
Suggested reading:
> Security Analysis by Benjamin Graham and David Dodd
> Contrarian Investing: the Next Generation by David Dreman
> The Aggressive Conservative Investor by Marty Whitman
> Buffettology by Mary Buffett
STEP 2: DETERMINE WHAT YOUR INVESTMENT STRATEGY AND TIME HORIZON ARE
Determine what type of strategy or strategies you think you will do well with and are comfortable with. The shorter your time the less aggressive your strategy should be. You might want to start off with multiple strategies. Common strategy themes are ‘Safe and Cheap’, ‘Growth at a reasonable price and ‘High dividend yield’, ‘Cash Cows’, ‘Profitable, but unloved’, ‘Blue Chips’, ‘Low priced growth stock, “Insider interest’ etc. Themes like ‘hot stocks’, ‘explosive penny stocks’ etc. are very hit and miss.
You should set your portfolio’s parameters:
> How large your portfolio will be
> What type of stocks you will buy (market, industry, market cap, etc.)
> How many stocks will you own
> What will make you buy a stock
> What will make you sell a stock
STEP 3; BECOME FAMILIAR WITH A SET OF INVESTING WEBSITES
There are a number of fantastic online resources where you can research individual stock. Yahoo finance (finance.yahoo.com) and Google finance (finance.google.com) are two excellent free resources. Morningstar is another good online resource, though you’ll have to pay for premium access.
Sometimes very useful information is hidden or not easily accessible. Mutual fund holders and insider transactions could provide interesting information.
STEP 4: LEARN FROM YOUR MISTAKES
Every time you pick a stock make notes about why you chose that stock. Go back and review your picks and notes periodically. Do you do better with industries or companies you know well? Do you sell too early when the market is volatile? Questions like these make you understand how you react to certain conditions and can help you recognize biases that hurt your profit.
Creating a mock portfolio, on sites like xearn.com will help you learn without risking actual money.
STEP 5: CHOOSE A STOCKBROKER
Research stock broking companies. Check out commissions, execution service levels, access to research, interest rates as well as other features. Popular brokerages are Schwab, E-trade, Ameritrade, Scotts Trade and Fidelity.
Now you’re all set to being a better investor than most!
Read as many books about investing as you can. Make your own decisions on what you are going to use. Learn about discounted cash flow analysis. Learn how to make inferences about management and industries from public information.
Suggested reading:
> Security Analysis by Benjamin Graham and David Dodd
> Contrarian Investing: the Next Generation by David Dreman
> The Aggressive Conservative Investor by Marty Whitman
> Buffettology by Mary Buffett
STEP 2: DETERMINE WHAT YOUR INVESTMENT STRATEGY AND TIME HORIZON ARE
Determine what type of strategy or strategies you think you will do well with and are comfortable with. The shorter your time the less aggressive your strategy should be. You might want to start off with multiple strategies. Common strategy themes are ‘Safe and Cheap’, ‘Growth at a reasonable price and ‘High dividend yield’, ‘Cash Cows’, ‘Profitable, but unloved’, ‘Blue Chips’, ‘Low priced growth stock, “Insider interest’ etc. Themes like ‘hot stocks’, ‘explosive penny stocks’ etc. are very hit and miss.
You should set your portfolio’s parameters:
> How large your portfolio will be
> What type of stocks you will buy (market, industry, market cap, etc.)
> How many stocks will you own
> What will make you buy a stock
> What will make you sell a stock
STEP 3; BECOME FAMILIAR WITH A SET OF INVESTING WEBSITES
There are a number of fantastic online resources where you can research individual stock. Yahoo finance (finance.yahoo.com) and Google finance (finance.google.com) are two excellent free resources. Morningstar is another good online resource, though you’ll have to pay for premium access.
Sometimes very useful information is hidden or not easily accessible. Mutual fund holders and insider transactions could provide interesting information.
STEP 4: LEARN FROM YOUR MISTAKES
Every time you pick a stock make notes about why you chose that stock. Go back and review your picks and notes periodically. Do you do better with industries or companies you know well? Do you sell too early when the market is volatile? Questions like these make you understand how you react to certain conditions and can help you recognize biases that hurt your profit.
Creating a mock portfolio, on sites like xearn.com will help you learn without risking actual money.
STEP 5: CHOOSE A STOCKBROKER
Research stock broking companies. Check out commissions, execution service levels, access to research, interest rates as well as other features. Popular brokerages are Schwab, E-trade, Ameritrade, Scotts Trade and Fidelity.
Now you’re all set to being a better investor than most!
Labels: investing in stocks
Investing in Stocks and Shares
Stocks and shares, unit trusts and investment trusts.
Shares give you part ownership of a company, so the value of your investment is linked to how the company � and the overall economy - performs. You can also invest in funds which buy shares in a wide range of different companies.
Over the last 25 years it has become quite common for people to own shares directly through a number of different ways:
� In the UK for example, many people bought shares when the government sold nationalized companies
� some people were given shares when their building society or insurance company changed from a 'mutual' (where its members were the owners) into a company with its shares being bought and sold
� as an employee you might also be awarded shares in your company as an incentive - this may be through a share option scheme, when you're offered the right to buy shares in your company in the future at a price agreed now
You can also buy shares directly in companies trading on the stock exchange through a stockbroker.
An alternative to owning shares directly is to invest your money in a fund or a company which, in turn, invests its money in shares. Your investments will be taken care of by a professional manager who uses skill and experience to decide which companies to invest in, buying and selling shares to grow your investment. This is called a 'managed scheme'. Your investment is spread over a larger portion of the market that you could do yourself, so reducing the risk.
Unit trusts can have any number of investors, so are known as 'open-ended' funds. You invest in these funds by buying one or more 'units'. The price of units varies depending on how well the fund performs.
Investment trust companies invest in other companies. Because of this these shares are limited in number, unlike unit trusts, so they're called 'closed-ended'. The value of your shares still depends on the performance of the investments but also on the demand for the investment trust company's shares themselves.
You make money from your shares by the companies that you invest in declaring 'dividends' or an amount payable per share. The more shares you own, the more money you make. But of course, business trends go down as well as up, so be aware that it just as possible to loose your investments as it is to make a profit!
Shares give you part ownership of a company, so the value of your investment is linked to how the company � and the overall economy - performs. You can also invest in funds which buy shares in a wide range of different companies.
Over the last 25 years it has become quite common for people to own shares directly through a number of different ways:
� In the UK for example, many people bought shares when the government sold nationalized companies
� some people were given shares when their building society or insurance company changed from a 'mutual' (where its members were the owners) into a company with its shares being bought and sold
� as an employee you might also be awarded shares in your company as an incentive - this may be through a share option scheme, when you're offered the right to buy shares in your company in the future at a price agreed now
You can also buy shares directly in companies trading on the stock exchange through a stockbroker.
An alternative to owning shares directly is to invest your money in a fund or a company which, in turn, invests its money in shares. Your investments will be taken care of by a professional manager who uses skill and experience to decide which companies to invest in, buying and selling shares to grow your investment. This is called a 'managed scheme'. Your investment is spread over a larger portion of the market that you could do yourself, so reducing the risk.
Unit trusts can have any number of investors, so are known as 'open-ended' funds. You invest in these funds by buying one or more 'units'. The price of units varies depending on how well the fund performs.
Investment trust companies invest in other companies. Because of this these shares are limited in number, unlike unit trusts, so they're called 'closed-ended'. The value of your shares still depends on the performance of the investments but also on the demand for the investment trust company's shares themselves.
You make money from your shares by the companies that you invest in declaring 'dividends' or an amount payable per share. The more shares you own, the more money you make. But of course, business trends go down as well as up, so be aware that it just as possible to loose your investments as it is to make a profit!
Labels: investing in stocks
