Investment is a process through which a person uses capital (money) to generate more money by putting it into a business. Then the business generates returns for the investor. William Schantz believes investors invest their capital in companies according to what kind of a return they want.
For a company to run and be profitable, it needs capital. This capital can come from investors in two ways. One way is to take a loan. This loan is taken in the shape of a bond. Another is for the business to sell a part of it in the form of equity, and conventionally equity is traded like stocks.
William Schantz Explains How Bonds Function
Bonds function by an investor loaning money to the businesses. The business then has to return the principal amount along with interest. The interest is the earnings for the investor, and this is how the investor can increase their wealth by investing their capital.
For example, if the interest rate is 8% and a bond of $100 is issued. The businesses have to return $108 to the investor over the stipulated period. When investing, it is important to know what is the investor’s appetite for risk. This is because there are multiple bonds in the market, and each bond has a different level of risk and hence a different rate. The riskier the bond, the greater the percentage return on the principal amount is given.
Different Kinds of Bonds
William Schantz thinks what’s important to keep in mind is that individual countries have the bonds that they issue. Through this, governments can raise money for short- and long-term investments. These bonds are the safest bonds and usually have the lowest return in the market. So if a company wants to issue a bond, it is usually done above the rate that the government bonds are issued.
William Schantz Explains How Stocks Function
On the other hand, there is equity which is usually in the shape of stocks. Stock is essentially a part of a company. The company is divided into very small parts, and each of the parts is individually sold. Once an investor buys a stock, the investor has a stake in the company, and the profits are based on how much the stock value moves in the market.
It is important to note that stocks are traded and regulated by the government through the stock market. The stock price is based upon the supply and demand of the stock in question; as the demand for the stock rises, so does its share price. Speculating which stocks will appreciate is how investors can have returned. For example, a share was bought for $50 two years ago, and the market price is $75 right now. So, if it’s sold, the investor can be said to have made a $25 profit on their initial investment.
William Schantz’s Final Word
When investing, the investor needs to be aware of the types of stocks. For example, a dividend-bearing stock will give a fixed yearly return on the stocks purchased. Whereas some companies only give dividends with regards to how the company does financially over the year. Therefore, William Schantz thinks it’s essential for an investor to have done the research beforehand.