Step 49: The Difference between Shares and Bonds

Step 49 of the 100 steps to Financial Independence: The Difference between Shares and Bonds
Step 49: The Difference between Shares and Bonds

Stock markets have a vast selection of stocks and bonds that can be invested in and before deciding what to invest in, understanding the main differences between stocks and bonds well is absolutely key if you consider getting in the stock market. Investors can decide whether they want to invest in just shares, just bonds or whether to create their own mix of stocks and bonds. With time, many furthermore decide to slowly reallocate their investments, so even if you start with a certain percentage shares and bonds, this needn’t stay as such for the rest of your investment life.

Here we’ll look at the main differences between shares and bonds from an investor’s point of view and how they both offer different advantages and disadvantages.

Volatility

  • Share prices vary more day-to-day but also over long periods of time: their value can increase or decrease fast.
  • Bonds are generally more price solid and fluctuate less over time and at a much slower pace than shares.

Continue reading

Step 35: Income stream 3: Interest Income

Step 35 of the 100 steps mission to financial independence: Income stream 3: Interest Income
Step 35: Income stream 3: Interest Income

So we have thought about our first income stream, which was a wage coming from a paid job, as well as the possibilities of a second income stream in the form of profit income. For most people either of these might be their main and only income stream and they might have never thought of other sources of income. Yet there are five more possibilities and even though that doesn’t mean you need to pursue them all, it is always good to at least find out more..

Let’s have a closer look at a third income stream: interest income from money lent out. Money lending and borrowing isn’t usually free, as the lender runs a risk (they might never see their money again), so the person who borrows money is required to pay interest on the loan in return, to make lending money more attractive.

Continue reading

Step 26: Open a new savings account

Step 26 of the 100 steps mission to financial independence: Open a New Savings Account
Step 26: Open a New Savings Account

Now that you know all about the power of interest over time, are building (or have built) your emergency fund and have started paying down your debt, we are moving on to a new area of your finances: your savings. In the next few steps we will look at your savings in greater detail, but the first step for today is to open a (new) savings account.

Looking at the title and this introduction you might think can skip this step as you maybe already have a savings account, which you are of course free to do. But opening a new account starts with investigating what’s on the market and I recommend you at least read through this step and potentially still consider opening a new account, as it never kills to have more than one savings account, especially if they don’t involve any costs, and because it can be helpful to have different accounts allocated to different savings goals. Apart from that, it is also a good habit to compare saving accounts from time to time, to make sure you are still getting the best deal. And if you find out you aren’t getting the best conditions possible, it is a good moment to consider changing your savings money to a new account. Continue reading

Step 20: Learn about Compound interest

Step 20 of the 100 steps mission to financial independence: Learn about Compound Interest
Step 20: Learn about Compound Interest

You have probably heard about compound interest, and might even feel you understand the notion of compound interest quite well, but since it is the key concept in some of the next steps and because the impact of compound interest over time might be far bigger than you realize, this entire step is dedicated to looking at how compound interest works.

In finance compound interest is one of the most powerful factors at work that by using time as it catalyst, can do one of two things:

  • keeping you poor by losing money on outstanding debts
  • making you richer by making more money with the money you already have

Let’s look at how compound interest works and how it generates this power over time. Continue reading