A common question among investors is whether they should try to make their money grow or get a nice dividend.
With Forex, this question doesn't come up because the main goal is to gain capital.
If a stock has a big dividend and a high yield that makes investors think it is undervalued, this could cause a small stampede that drives up the price and brings the yield down to a more normal level.
But it is also possible that one could have to wait a very long time for Bethlehem and Youngstown to merge (which the government doesn't like) or for Northern Pacific to make more money from oil than railroading.
The big problem for the capital-appreciation man is that he makes forecasts and predictions on a bigger scale than his brother, who just wants to figure out the chances that General Foods will keep paying its $2 dividend.
There are clues that make the job more than just a guessing game, but it is still hard. Directors of corporations are notoriously tight-lipped about anything that could change the basic structure of their company. The average investor probably won't be able to learn enough and act fast enough to get an edge in this area of capital gains.
As for growth, there is a lot of room to grow. But it's hard to know whether to choose an Ampex, a General Dynamics, or an Eastman Kodak.
Every big and successful company today started out small, and investors who bought in when the company was on the rise made a lot of money. But which of the hundreds of small electronics companies will be the next General Electric, and which will fail like so many promising car companies did a generation ago? (Does anyone know how much Pierce Arrow sold for?) And what is Mighty Atom Instruments, Inc. likely to do that Westinghouse can't do better, given how many different things our big companies can do? Even if you have picked a winner, did you pick it early enough?
The prices of many so-called growth stocks already show how optimistic buyers are, which may be more than what the companies can earn.
Remember, too, that in a rising market like the one we've had for so many years, the best way to make money is not to pick a successful company—there are plenty of those—but to pick one that beats the market.
It can be done again because it has already been done. A brave investor who has done a lot of research on the market can buy a temporarily low-priced or unpopular stock at a good price and then make money when it goes up. Or he may be able to figure out which company is about to have a great year.
But for a new investor, the best way to try to make their money grow is over a long period of time. Make sure your stock is not too expensive, then buy it and give it time to grow.
Principal's Safety: Bonds are what this is really about. If an investor is willing to give up a big profit in the form of dividends or capital growth, he or she can only be interested in keeping the money they have invested. Most of the time, this is done by buying bonds, which are debts owed by the company and not shares in its profits.
If you hold on to a bond until it's due date, you'll get back the amount you put into it. And bond interest must be paid along the way, regardless of how much is left for stockholders. Interest is paid at a set rate for a set number of years. This rate is usually between 2.5% and 4.50%, depending on how hard or easy it is to get money at the time the bond is issued. But once it's on the market, a good bond, like a good stock, is often bid up so much that the return is much less than if it had been bought at par.
Municipal bonds, which are issued by towns and cities to pay for things like schools, sewage systems, water lines, and other similar things, state bonds, which are issued to pay for a wide range of needs, and public authority obligations, which are usually used to build and run toll highways or bridges, are mostly of interest to wealthy investors looking for tax breaks. All three are tax-free because they are loosely called "municipalities." For a man in the 50% tax bracket, this means that a bond that pays 3% will bring in the same amount of money as stocks that pay 6%.
Still, a new investor who wants to buy bonds should probably buy United States Savings Bonds in Categories E or F. They are the most secure things you can buy. They can't be called back, and their value doesn't depend on how other securities and markets change. (Corporate bonds tend to go down when stock prices are low and yields are high, and they tend to go up when stock prices are high and yields start to get close to what bonds usually offer.)
Another point is that corporate bonds are usually sold in $1,000 amounts, which means that only wealthy people or institutions can buy a large amount.
If you invest in Forex, remember that trying to make money can be risky, and good Forex software will help you lower risks.
