TODAY | July 25, 2013
>> this morning on investing 101, where should you put your money, stocks or bonds? this stuff is going to sound remedial to the seasoned investor, but there are a lot of us -- and i do say us -- who need help in this department. let's start with the basics and explain what exactly a stock is.
>> it's really easy to understand because a stock is a part ownership in a company. you're really sharing the ownership with the company with all the other stockholders. that's why they call you a shareholder. if you buy stock in mcdonald's, you're kind of an owner in mcdonald's. you want people to buy a lot of big macs . that's good for you.
>> how do you know what stock to buy?
>> that's indicdifficult. if you want to buy a stock , you have to know which stock to buy. you may like a good company, but it may not be such a good stock . you have to do your homework.
>> what is a bond, melissa?
>> think of it as a loan. basically, a company or a government needs money to build a road or buy some equipment. so basically, you are lending the company or this country or this city some money, and they're paying you interest. that's called a yield. there are different kinds of bonds. not all bonds are l kequal. some are risky, some are less risky. treasury, u.s. bonds, that's what you get when you turn 13 or whatever. that's what i got when i won the science fair . little known facts about me.
>> what did you make for the science fair ?
>> it was an experiment on algae to develop more protein levels in the algae.
>> she's very intelligent.
>> back to the bonds. we're going off on a tangent. the lower the yield, basically, you're seeing this as a less risky investment. they don't have to pay you as much money in order for you to loan the money. the riskier the country or the company, the higher the yield. there has to be a tradeoff.
>> deborah, i'm watching tv or reading the newspaper and i hear about a company i like, and i think it's something i want to invest in. where do i go? what's my move?
>> there's three ways you can buy a stock or bond. you can get a registered investment adviser , and they're going to charge you a flat free to take care of your account. you can go into a full service brokerage like merrill lynch or goldman sachs . they're going to really help you out, but it's going to cost a lot. their commissions are high. and you can go to an electronic trader like an e-trade or ameritrade. the commissions are much, much lower, but you have to do all the homework yourself.
>> the general rule of thumb , the less you want to pay, the less help you get.
>> so you should have a portfolio. you should have a mix, right?
>> that's correct. you want to make sure you don't have all your eggs in one basket . you want to spread out your investments.
>> i think we've got a couple that you can show side by side , melissa, and kind of look at the difference of asset allocation in two different portfolios.
>> basically, what you want to keep in mind is, when you're younger, you want to go riskier. you're more leveraged towards stocks. you have time on your side. you have time to weather the volatility and ups and downs of a portfolio. age 30, we showed a portfolio of all stocks. the average return is about 10%. between 2006 and 2010 , they did a study of average annual return . some years, massive returns, 163%, some years you lost a lot of money.
>> over 55, you want a little more stability.
>> so you add in the