— Aurora, IL
Investing can be a daunting task. There are a lot of technical expressions involved that may confuse the average Joe. However, taking on this challenge can result in immense benefits, as we’ve seen this past year. The share prices of GameStop and AMC have skyrocketed, and shareholders have gained a remarkable amount of wealth. Even cryptocurrencies, like bitcoin and dogecoin, have yielded monumental financial growth for their investors. Investing and cryptocurrencies will only grow in popularity, only making it more beneficial to learn their inner workings as soon as possible to get the most value out of your hard-earned money.
Stocks, bonds, and shares are some prominent buzzwords relating to financial investments. Stocks are the general catch-all term used to describe shares of a company. Shares are the figurative pieces of a company you can buy. Shares have values that are determined by the basic principles of supply and demand, as well as certain complex formulas and algorithms. For example, Facebook (commonly known as FB, its ticker symbol) may have a share value of $10 when it first goes “public”. When a company goes “public”, that means that the company has decided to allow members of the general public to buy its shares. Going public is also known as an IPO (initial public offering). Upon IPO, Facebook offered about 421 million shares at a price of $38 per share. This means that the total value of Facebook when it went public was about $16 billion. Throughout the lifetime of a company, they can issue more shares or split their shares for more financial growth. Ambitious investors buy shares of companies with the hope of share value growth down the road. Growth in the share value can bring the investors profit. However, when a share price goes down, the investor may lose money, so one must invest in stocks that have potential for growth in the future.
Bonds are a bit different than stocks. When a government or corporate business requires money to fund their projects, they may ask investors to loan them money. When the loan is received, the government or business will issue a bond, which is like an IOU that includes the details of the payment, interest, and details of the lender and borrower. Governments and businesses use bonds when they need a large sum of money that a bank may not be able to offer. Therefore, they turn to individual investors to loan them the money. After a set period of time, the government or business will give back the money plus any interest made on the loan. Bonds are more secure than stocks. There is a higher chance that you will gain a profit with bonds than with stocks. However, stocks are more likely to give you a large profit. For example, if you had invested $1000 in Apple in October 2010, currently the highest valued company in the world, you would currently have almost $13,000. Of course, it is hard to know exactly which companies will rise and which will fall.
Cryptocurrencies are similar to stocks in that you can buy them, and they may increase in value over time but are a bit more complex. As the name suggests, cryptocurrencies are a type of digital currency. These currencies are nothing but software, when you strip away the fancy branding and icons. Transactions inside of cryptocurrencies, like Bitcoin for example, are recorded in digital ledgers, called blockchains. Investors can buy and sell cryptocurrencies in exchanges or between each other. The blockchains running these cryptocurrencies are extremely secure because they run on a trustless system. No one needs to trust anybody else for the mechanics of the currency to work. Whereas other currencies may have one group or person watching over the authenticity of transactions taking place, Bitcoin and many other cryptocurrencies are decentralized. The full list of blockchain transactions can be found easily on the web, and it is due to this transparency that cryptocurrencies are very secure. In the past year, Bitcoin has gone up thousands of dollars with a peak of around $60,000. Dogecoin, which started off as a joke in 2013, had a price of less than a cent at the beginning of 2021. Now, it is worth around 30 cents and peaked at around 70 cents. Cryptocurrencies may give you boatloads of money, but they are immensely volatile and can go up and down seemingly randomly. Dogecoin is even affected by Elon Musk’s tweets on Twitter, as we have seen in the past month.
No matter what type of investment you make, it can be extraordinarily beneficial for you in the long run. If you do it right, it can put you in a great financial for the long-term.