Cash, stocks, and funds.
Let's turn our attention to cash,
stocks, and funds.
Bonds and other investment strategies- ETF's, short
sell, Forex, etc., will not be covered in this article.
Before discussing cash, stocks, and funds, let's
identify an account where you can execute a transaction to buy or sell in
the stock market.
Direct buy -Vs- a Brokerage.
Unless you "direct buy" stocks from the company
themselves using cash you have in a checking account, you will need to set
up a brokerage account.
A brokerage account is a licensed firm that you have selected
to conduct buys and sells and to manage the account using money that you
sent them or transferred to them.
There are plenty of firms that are reputable and
licensed or registered- see related links on the left...
After choosing a brokerage, you would then apply to
the firm, going through the steps on their Website.
Application normally consists of your name, address,
phone/cell number, Social Security Number, type of account(s)-- IRA,
401K, taxable-- and other setup information.
Account funding instruction would also be a part of
the setup process.
"A
brokerage is a business licensed by Government to act and conduct business
as a Broker between buyers and sellers in the capital/ stock market"
To fund an account, you send money [or transfer the
money] to the brokerage. The brokerage in turn holds the cash in the core
account as "cash to settle with".
The cash sits in the cash portion of the account and
is used by the brokerage to settle orders you execute.
Stocks/ funds that you buy are debited out of the cash
in the account. Stocks/ funds you sell are credited to the cash account.
Commissions, interest, and dividends are debited and
credited to cash. And, of course, you can withdraw available cash.
Stocks and funds.
Basically a stock is a share of an individual company, or a piece of a
company, that they give for a price. A stock or share of a company can be
bought, held, and sold on the open market or in a private sell.
When you buy stock, you are issued, electronically or
physically, a certificate of ownership that identifies the company you
invested in, number of shares & registration number.
A fund- mutual fund- is normally made up of individual investors
that invest in a collection of investments of different companies or sectors
that a team of persons manage.
Money from investors is collected into the
funds cash account. Shares are then
bought and sold under management of the team, kept in the fund until
the individual investor sell his/her shares of the fund, at which time the
proceeds are added to your brokerage core 'cash account'.
So right off the bat, you can see that if in your strategy you don't want
to manage your investment, you can buy shares of a fund and let a 'fund team' manage it
for you.
So it is very important that you get a fund manager that is right for you.
One of the things you need to do is decide if you want to manage or do
you want to hire someone else. If you want to have someone else manage
your investment then you can go the mutual fund route or have a Certified
Financial Planner manage the investment.
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