14 Aug The Stock Market and Fro-Yo
The following is an excerpt from my upcoming book, Money Mastery. My heart in writing this book is to empower Marketplace Missionaries to build wealth and invest in the Kingdom! Check out my unique metaphor for explaining the stock market below!
There is something innately scary about the stock market. The options can seem infinite and the risk appears steep. The terminology alone takes a while to learn. So how do we boil the stock market down? Well, let’s look at everything through the lens of frozen treats.
Recently, Becky and I took a vacation to the Caribbean Island of Aruba. We love the clear water, the soft, white sand, and the small shopping areas right by Palm Beach. This shopping area is separated into two distinct parts. When we visited the first part, we found an amazing gelato shop. In the second part, we found a Baskin Robbins ice cream store and a frozen yogurt store. We discovered that the three best frozen treats are easily accessible from Palm Beach. Which one you choose is really a matter of personal preference. Now, we ended up choosing all three, but my wife’s favorite was definitely the gelato. In order, we decided we enjoyed gelato the most, then ice cream, and we enjoyed frozen yogurt the least.
This story reminds me of the three giants of investing. Basically, there are three frozen treats out in the world: investing in real estate (gelato), investing in business (ice cream), and investing in the stock market (frozen yogurt). Becky and I have done all three, but we definitely prefer real estate and business over the stock market.
Now, you’ll probably like one better than the others too. But I recommend trying out two! For instance, ice cream might never be on your radar. But that shouldn’t stop you from trying some frozen yogurt instead of gelato every once in a while. Again, I personally recommend getting into business and real estate. But for those of you who don’t have the time to build these, the stock market is also an option.
Now, in real estate, the gelato represents the properties in which you invest. In business, the ice cream would be any business that you create or acquire.
The frozen yogurt in the stock market represents what is actually traded: stocks and bonds.
Stocks are an equity security that represents ownership in a corporation and a claim on part of the corporation’s assets and earnings.
Bonds are a debt security in which an investor loans money to an entity for a defined period of time at a variable or fixed interest rate.
These two items are what the stock market is made up of because they are what we actually trade.
Note: Cash equivalents are also a part of the stock market, but they are beyond what I would like to address in this book. Cash equivalents are generally more important for corporations trying to hold short term money than they are for individual investors.
So let’s go a bit further with this metaphor. How can we possibly break the stock market down into fro-yo? Well, it’s like this. Becky and I are sitting at home when we decide that we should get some frozen yogurt. The first question is: What store? Are you more of a TCBY or a Menchie’s person? Is it going to be Orange Leaf or Yogurtland?
The same thing happens when you decide to get into the stock market. The first thing you have to decide is where do you want to go to start investing? Will you go with a brokerage account? Or will you go with some type of IRA? Just as you need to choose a store to access the fro-yo, you need to choose a type of account to access the stock market….
Order Money Mastery to see where I go with this! You’ll also get some beginner tips on business and real estate.
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