Stocks/Mutual Funds/Bonds

What is better? How do you go about it? Pro's/Con's.

I was just having a discussion with my boss about it, and the stocks that she incurred when her mother passed a year ago. I am not quite understanding some of it, and such.

I would just like to know about them, and are they really worth it, and such. Thank you in advance.

Originally posted by watercolor
What is better? How do you go about it? Pro's/Con's.

I was just having a discussion with my boss about it, and the stocks that she incurred when her mother passed a year ago. I am not quite understanding some of it, and such.

I would just like to know about them, and are they really worth it, and such. Thank you in advance.

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This question is akin to "What is the best car for the money."

no one can make the best decision for you except YOU. don't laugh, but pick up a copy of "investing for dummies" ... it will give you a lot of the basics about various types of investments in an easy-to-understand manner.

if someone 'inherited' stocks for say GE that are from 20 years ago, they'd probably be worth a pretty penny. personally, I like mutual funds b/c you get a little bit of a lot of companies and don't see such a drastic, overnight fall in your investment as the market hula-hoops. you also won't lose your azz if one of the companies in a fund goes under b/c that company will be replaced in the fund. bonds (IMO) are a waste of time/money unless it's something you are giving as a gift to a kid for down the road or you are a spend-happy freak (like me) who will just cash in your stocks at the drop of a dime to go shopping at Pier 1.

Ok. I understand that no one can tell you what is best for you. But I wasnt sure on going about it. But that book may actually do some good. I will look into it.


Ok, just to give you a scenario-

My boss inherited mercentile shares that her mother had from her father when she got married. there are 5 children all together, and each of them got like 18 small peices of it when she passed, which in turn gives my boss about a 5-700 dollar profit quarterly.


I asked her some questions on it, but it was more or less that she inherited it. She said she had bought stocks in something a while back when she retired from a GS position, and put a good deal of money into a stock and it hasn't done her much good, and it will just tax her out the ass if she tries to cash it in.

I wasnt quite sure of the tax end of it too, not to mention does it put you in a different bracket? or what?

I was talking to a friend who works in an accounting firm and these are some of the things she told me- is she correct, or what do you have to say in reference to a "con" on what she says.


"my advice to you is to invest in a well diversified mutual fund--something with vanguard is good--they are a good brokerage. but you wouldn't have enough money to buy actual stocks and diversify so a mutual fund is the best way to go. when you are picking one you probably want to research the brokerage's reputation and the fund manager's reputation and you definately want to look at the stats on the mutual fund."


"a lot of them will tell you their risk factor and depending on how long you want to leave the money in determines which mix of things you get like if you want to leave it in for the long haul and pull it out in like twenty or thirty years or longer, then a mutual fund that is a little heavier on stocks is better. because over time stocks will give a better return than bonds but bonds are less risky and you may earn more with a larger part of your fund composed of bonds if you want to take the money out in a few years or so."'

Ok, a stock is a small share or piece of a company that you own. The value of the stock is determined by it's value on the stack market it is traded on. The most well known stock exchange is the NYSE. Companies must meet certain criteria to be eligeble to be traded on NYSE. NASDAQ is not really an exchange but it is a system for trading stocks not listed on the NYSE. NASDAQ still has requirements for a company to be listed and their stocks traded. All other stocks are Over The Counter (OTC) generally called "penny stocks" If the company does well stock goes up, if it does poor, stock goes down. The value of a stock fluctuates with the buy or sell prices that brokers offer and accept throughout the day. The brokers buy and sell on information they get from stock analysts, company announcememnts, company predictions, past performance, and many times just plain old rumors. Broker John may here that GE is in the running to win a big contract to provide jet engines for a new aircraft. He begins to buy GE stock thinking that the company will will the contract. Other brokers see broker John buying and bu as well. This will drive the price up. When GE doesnt win the price may go down.

There are several types of stocks that can be issued by a company. The 2 primary types are "Common" and "prefered". Common are just that, the most common. You buy a share of common stock you own a tiny piece of that company. With that ownership you also gain a tiny percentage of the companies profits called a dividend. Once a year a company will announce if it is going to pay a dividend. (many do not anymore) If you own the stock on a predetermined date (called the Ex dividend date) you get the dividend. Most dividents are small, like 1 cent but can goup to $1. If you own 5,000,000 shares and the dividen is .01 you just got $50,000. Most stocks are held by brokers. Even is you buy it you just get a statement from a broker saying "You have XXX shares of GE" Some old timers have "stock certificates" or a paper with a CUISP (a serial number) that is like a "title" for whatever ammount of shares. In some cases the company has been bought out, gone under, merged or for whatever reason does not exist anymore. In some of those cases the stock certificates are more valuable as collectors items than they are IRL.

Prefered stock is a different kind of stock that doesn not usually entitle the owner to a dividend. They are less volitile in that should the company fold, the preffered stock holders get paid first.

Stocks can be risky, depends on what you buy. There are certain companies that are very stable and have shown slow steady growth for decades. these stocks are considered very safe and are where people invest when times are shakey. They are calle "blue chip" stocks. They include, GE, GM, Ford, AT & T old reliable companies. On the other end of the scale are risky companies. A small company that is into off shore oil drilling might sound good but has much much more risk than IBM.

More when my fingers uncramp

Originally posted by watercolor
Ok. I understand that no one can tell you what is best for you. But I wasnt sure on going about it. But that book may actually do some good. I will look into it.


Ok, just to give you a scenario-


I wasnt quite sure of the tax end of it too, not to mention does it put you in a different bracket? or what?

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Anytime you sell stock it is considered "capital gains" and is taxed at a higher rate. Stocks held over 1 year are slightly lower tax rate than short term, or stocks held less than 1 year.

Originally posted by watercolor
I was talking to a friend who works in an accounting firm and these are some of the things she told me- is she correct, or what do you have to say in reference to a "con" on what she says.


"my advice to you is to invest in a well diversified mutual fund--something with vanguard is good--they are a good brokerage. but you wouldn't have enough money to buy actual stocks and diversify so a mutual fund is the best way to go. when you are picking one you probably want to research the brokerage's reputation and the fund manager's reputation and you definately want to look at the stats on the mutual fund."


"a lot of them will tell you their risk factor and depending on how long you want to leave the money in determines which mix of things you get like if you want to leave it in for the long haul and pull it out in like twenty or thirty years or longer, then a mutual fund that is a little heavier on stocks is better. because over time stocks will give a better return than bonds but bonds are less risky and you may earn more with a larger part of your fund composed of bonds if you want to take the money out in a few years or so."'

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Mutual funds are simply a fund that buys shares of stock. Some funds are concentrated, in that they only buy stock from a certain sector like medical companies, some are diverse in that they buy stocks from many different kinds of companies. Diversification is much less risky. If a diversified mutual fund holds stocks in the agricultural sector and a drought wipes out crops, it will take less of a loss overall than a mutual fund that only buys and hold agricultural company stocks.

By law, the mutual fund company must tell you what the objective of the fund is and the potential make up of it. They cannot sell the fund advertising that it is a safe growth only investing in low risk blue chip companies, then turn around and buy high risk stocks.

Morning Star has a good free service that describes almost every mutual fund, its makeup, its holding, historical returns, and its risk factor.

With mutual funds you do not own the individual company stocks, you own a share of the overall funds holdings. Dividends paid are distributed annually to all the shareholders.

Mutual funds form respectable companies are relatively safe. Where yu have to watch is for "fees" commonly called "loads". There are "front loads" in which the fees are collected upfront when you buy shares of the fund. There are "No loads" which which have no "fees, and rear loads meaning the fees are deducted when you sell. "No load" funds are the best because you do not pay any fees. Fees run anywhere from .5% to 5%.

Even if a fund is "no load" there is 1 type of fee that still charge caled a 12b1 fee. This is an administrative fee they charge to cover administrative costs.

Most folks I know purchase stocks and invest their money for one and only one reason - retirement. Through their employer, or by themselves, they have the singular purpose of planning their future over the long-term. So their investment strategies differ from those interested in making money in the short-term.

Is this what you had in mind?

A bond is nothing more than a loan. A bunch of people get together and all chip in money to loan to a comany "corporate bond" or even local government "Municipal bonds". The company or government entity offers up a bond with a set rate of interest over a set period of time. People buy portions of that bond and are paid the principal plus the interest at the date of maturity. Municipal bonds and some other government bonds are tax free. Meaning oyu do not have to pay taxes on the portion of interest you were paid.

Like people, companies and governments have a credit rating. This credit rating usually determines the risk, and the interest rate they will pay to use your money. Companies that have poor credit ratings pay very high interest on their bonds. These bonds are called "junk bonds". Stay away fron them, many have tried to make quick money trading junk bonds and lost.

I heard that Google is registering for an IPO this week.



I know I'm getting me some of that.

Money magazine is also a good source of historic info to help you make decisions. Trading small amounts in stock can be a lot of cheap fun but very few make a killing in stocks. Mutual funds are the way to go. Vanguard, T Rowe Price are good sources and they are no load (no sales fee). Bond funds were the thing to have when the market tanked. Even now, Maryland Tax Free bonds are paying around 4.5% tax free. You can get those through T. Rowe Price among others.

Google sounds shaky to me, what tangible goods do they sell? This kind of stock is what caused all the problems with the dot com crash.