Make Money While You Sleep - My Amazon eBook FREE For All Steemit Users - Chapter 2

Hey everyone, here is Chapter 2 :) hope you enjoy

Chapter 2

stocks and mutual funds

la crème de la crème as people say. Stocks and mutual funds are the high end investors number one way to achieve financial freedom and to have a constant stream of steady stream of passive income. For those unaware, or for those who don't know as much as they think about them, stocks are portions of a company that you can purchase online and sometimes in person. This “stock” represents a fraction of the company that you now own. So essentially, when you own a portion of a stock from a company you are in some ways a co-owner of the company. That isn't to say that you have a direct hand in the way the company or institution will work or how they will carry out everyday activities. But, there are companies that after you own a stock they will actually send out quarterly letters telling you about the companies growth, how things have been handled and what they expect for the company in the future. An Important note is that after being in possession of a stock you are then entitled to a portion of their earnings, this is where the stock gets its value from. However, even though you are the entitled to a percentage (however small) of their earnings, you are in no way liable should the Company go under. Meaning, there won't be someone knocking at your door coming to collect whats owed nor will they try to take you to court.

Being a stock holder is one of the most trusted ways to invest all around the world. This is simply because as long as stocks and the stock market has been around, even during depressions and after market crashes the value of a stock will continue to rise. Now, be careful here, not ALL companies will continue to rise and have never ending success. There is no fool proof method of investing. Remember all investing is something that should be done at your own risk. As the saying goes, “Only invest money that you can afford to lose”. What is important when choosing stocks is, to make sure to choose from companies that have a long standing history with the public, are highly profitable, or have been in the past, and have been around for 60+ years, these companies are usually in better shape than others and are usually a sure bet in the long run.

If you take a moment to look around your house for a second, look at the name of the products that you use, that your friends use, things that you have seen around since you were a child, and check these against the companies current stock price and PREVIOUS stock price, this is how the winners determine the stock that they will choose to invest in. It's a matter of finding things that not only sound good, but that you know aren't going anywhere.

Stocks are a very popular form of passive income simply because a large number of them are placed in the 'dividend' category. What are dividends? Well, dividends are what a company pays out usually every 3-4 months to a share holder (someone who owns a share of the company and owns a stock) and these payments depend on the current value of the stock. For instance, if you own 1 stock from company “A” who's stock is currently valued at $100, and their dividend rate is currently pegged at 5% for each stock, when the time comes for the dividend pay out you will receive 5% of the value of the stock, which is $100, so, you will receive $5 in the form of a check, or it will be deposited to your account. Simple enough right? Right. There's really nothing to it besides that. The magic happens when you have multiple amounts of stocks that pay out dividends. It's a bit like compounding interest, except that it compounds in the amount of stock you own from the company. For instance, If you owned 10 stocks from the company, which would then be altogether valued at $1,000, your dividend pay out would then be $50 during each period.

I mentioned earlier that this is how the “big boys” make their passive income. Because realistically the more stock you own the larger your dividend pay out will be. There are people who make their money exclusively from dividend pay outs. Some of the most well known millionaires rely exclusively on dividend payouts from stocks as their source of income. That isn't to say they don't own other things that make them money, but, stocks are what they believe in and invest in the most. A lot of people tend to simply put money into certain stocks every couple of months, so that their share in the company grows, and thus every few months once the payments are paid out, their return has increased even more.

If you wanted for instance a dividend pay out of $50,000 a year. You would normally need around 1 million dollars invested into a company that has a 5% dividend pay out. Now, its not impossible, don't let the million dollar mark scare you off, there are people who have hit this number within 20 years simply because they have invested heavily and have seen great returns on their investment. Again, its important to pick out companies that are strong, that are well known and that have a great reputation. There are a handful of websites that allow you to see a companies history and how they're currently doing in the news and elsewhere. It helps a lot because it always keeps you a bit ahead of the curve as far as knowing whats going on with them and with your money.

Its interesting to also note that many people after receiving a dividend payout from the company will simply reinvest it back into the company. Once you have a handful of stocks with a company and your dividend payout is rather high, why not reinvest the money back into the company, so that during the next payout you earn more money than you did just a few months ago. Other options include an automatic rollover of funds back into the stock, so that instead of receiving money from the company at all, your dividend payout will be used to automatically buy more stock in the company. It makes things more passive, especially if you have no interesting in doing this every few months yourself.

One of the coolest things I think about dividend stocks are peoples ability to use them as a way to live. I remember when I first started investing, I would read stories about people living all around the United States who calculated their cost of living each year. They would then save and invest enough so that all their living expenses were covered by the stocks they own. The stock market tends to have a constant rate of growth that sits around 8-10%. That is to say, even after all the market crashes and depressions, the market has always held a constant 8-10% rate of return, regardless of its past dips and falls. This 8-10% is important to note as the current rate of inflation generally sits around 1% each year, so an increase in profits of 8-10% while you receive a dividend from the stocks you already own is simply fantastic.

Another thing that most people pass up when they discuss stocks, simply because they have never heard about them, or maybe don't know much about them are mutual funds. In a nut shell, mutual funds are stocks that are bundled together into a large package, known as a fund, these funds are then professionally handled and monitored by people who know the market and will move your money around in case of any dip in the market.

You can own mutual funds of all sorts. They come in a wide variety of packages. There are mutual funds set up specifically for retirement, or for people who are close to retiring (i.e if you retire in 10 years, your mutual fund will be comprised of high earning stocks that will reach to give you the rate of return you want before you retire). There are mutual funds that are comprised of stocks that work a bit slower, but the stocks they hold within them are almost a sure bet, so they will give you the increase you want without a large amount of the risk that might be involved with retirement funds. There are mutual funds that will only bundle stocks together that deal with pharmaceuticals, mutual funds for software, food companies, and the list goes on and on and on. I actually find mutual funds to be a bit better than stocks because of the fact that they are professionally taken care of, this once again making the entire thing more passive for the investor.

A lot of people are turned off by stocks simply because the individual investor themselves has to deal with them, no one else does it. While with mutual funds, all aspects of your money are taken care of for you. This of course comes with a fee, but, there are a large number of companies that offer extremely low fees and rates in return for helping you with your money. Some as low as 1% of your portfolio rate, which, ill tell you now, is absolutely excellent.

Mutual funds, much like stocks can also carry dividends. That is to say, the stocks that are bumbled up in a particular mutual fund will make sure that they also carry dividends, so that again each quarter (usually three to four months depending on the company) you will receive a check in the mail from them with the dividends that the company has given out. Or, these can again be rolled back into the fund to constantly pump your fund up to increase your profits for the next quarter. I personally have found mutual funds to be one of the best things about investing in stocks, I've also found the returns to be a bit better. After a few years of dealing with stocks and mutual funds together, I've seen on average a 15% increase in profits in mutual funds, while the stocks that I did own individually gave me around a 6% increase. This is of course up to the individual investor, money is different for everyone. When I give financial advice I tell people to lean towards mutual funds when they want an investment that has a lower risk level. Simply because the mutual funds themselves are professional managed by other companies who usually have a bit more insight in the company than a lone investor would have. Its also more so, making your investment more passive than it would be normally. The point is to have the money work for you, not to be in a constant state of fear as the market moves up and down, I like to leave that to the professionals.