Posts

Investment #2 – Bonds

With Fashion Week around the corner, the city of New York is thinking of opening a new high-end mall to feature all of the new designers and their clothing lines. In order to build the mall, the city of New York needs to borrow money. But instead of borrowing money from the bank, it decides to borrow money from the public, with the issuance of “bonds”.

Bonds:

A loan given to a company or government from an investor (like you).

So why would someone like you give money to the city of New York to build a mall? What do you get out of it? A lot actually. When you decide to lend money to the city of New York, the city of New York will pay you an annual interest rate as a “thank you” for lending them the money in the first place. Once the mall is built, they will give you back your initial payment in full.

For example, the city of New York is offering bonds priced at $1,000 over a 10-year period in exchange for 5% annual interest rate.

So, after paying $1,000 for a bond, you will receive $50 every year for 10 years. Once the 10 years is up, you will get your $1,000 back. Therefore, you made $500 profit from investing $1,000… Not bad right!

The par value (initial price) of your bond is 1000$ with a coupon rate of 5% (yearly interest rate) and a 10 year maturity date.

Buying a bond is a smart way to preserve your money while letting it grow on its own! Bonds are also viewed as safer investing options compared to stocks, since you know exactly how much to expect. Of course, like any investment, bonds still have risk. The risk is much lower than other alternatives, but there is always a possibility that the company or government goes bankrupt and can’t pay back the initial payment (aka default risk).

Usually, institutions with higher default risk provide higher interest rates per year (like corporations) while safer companies provide lower interest rates per year (like governments).

All in all, if you’re looking for a safe investment with stable returns, you might want to consider investing in a secure bond. It’s a great way to preserve your money while letting it grow in your sleep!

Would you invest in a bond? Let us know below!

Investment #1 – Stocks

Anna loves sports. She does Yoga on Monday and Wednesday and goes for 5k runs two times a week. Neighbours recognize Anna because of her trendy sport equipment. She prefers the latest outfits of winfit – a pink multifunctional bra which suits perfectly to her aerodynamic running shoes. When Anna meets her friends for dinner, they often talk about the latest sports footwear and apparel trends. She follows winfits blogs and is the first in line when a new sneaker is released in stores.

I met Anna two years ago and wondered if she also holds stocks of winfit. Anna admired winfit and was quite enthusiastic about winfit’s futures success. However, she never heard of stocks or public listings.

Winfit is a publicly listed company, which means that the company’s stocks are freely traded on the stock exchange. Examples of other publicly listed sport companies are Nike, Puma or Adidas. By buying winfits stocks,  Anna is able to own shares of the company, becoming a shareholder of winfit – she owns a part of the company. The more stocks of winfit Anna acquires, the greater becomes her ownership stake in the company.

Stocks:
Stocks are ownership certificates of any publicly listed company.

So what’s good about Anna holding winfit stocks?

Owning stocks comes along with three major benefits for Anna. Firstly, she might receive dividends (money) when the company makes profits.

Dividend:
A sum of money paid regularly (typically annually) by a company to its shareholders out of its profits.

Secondly, Anna has the right to vote in shareholder meetings. At such meetings, shareholders get information on the company’s financials and can vote for the new board of directors. And guess what – Anna’s vote counts for more, the more stocks she holds.

Thirdly, Anna has the right to sell her shares to someone else, and profit from this sale. How can Anna benefit or profit from selling her shares? This will be explained in another blogpost (here).

Pretty simple, right? Now that you understand the basics of stocks you might wonder – why would companies like winfit want to offer its shares to the public? Find out in our next article here.

Welcome to Investing!

Let’s start with the basics. What does “investing” even mean?

Investing:

The act of spending money into something with the expectation of getting more money out of it.

It’s that simple.

Investing is about prioritizing your money, and “working smarter, not harder”. It’s a way to let your money grow in your sleep, vs. working full-time to make ends meet.

We all know the instant gratification we get when we purchase something we want, whether it be new pair of shoes, a cute outfit, a vacation, etc. Yet it isn’t long before that pleasure wears off and suddenly your wallet seems a whole lot smaller.

Investing on the other hand, allows you to set your money aside, and let that money work for you while you enjoy life. It is the aim to purchase something that will give you even more money than you had spent in the first place. It’s a type of purchase that will excite you not only from the moment you buy it, but as long as you have it.

You work hard enough, it’s time to make your money work for you.

Investing – An example:

Kanye West is launching another “Yeezy shoe giveaway” contest. Here, 100 winners are given the opportunity to buy one of 100 pairs of Yeezy shoes at 200$. As an investment, you would buy one of these pairs of shoes (at 200$) in the hopes of selling these on eBay for much more.