Owning vs. Loaning – How Will You Invest In The Market?

There are two primary ways that a person can invest in the market – you can either own something, or you can loan someone money. Admittedly there are other exotic strategies, however these are the two most common, and ones that investors should probably stick to.

Owning

The first way to earn money in the market is to own something. You could own a company, gold, or real estate. When you want to own part of a company, you can simply purchase stock in that company. Purchasing stock means you literally own a part of that company.

So let’s break this down further. When you own something, you can earn money in 2 primary ways:

1. By what you own being profitable – When companies are profitable, they can distribute those profits to the owners of their company (also called shareholders) in the form of dividends. If you own rental real estate, you can receive whatever rent is left over after mortgage payments.

2. By the value of what you own going up – The value of a company can go up or down, and this is reflected in the price of the stock of the company. The price of gold or real estate can go up, and you can profit if you choose to sell it.

Now that you know about owning, what about loaning?

Loaning

You can earn money by loaning money to others. When you deposit money into a savings account at the local bank, they pay you interest (admittedly at lower rates than in the past). By making this deposit, you are literally loaning the bank money. Another example of this is when you purchase a CD. Since you are locking in the loan for a longer period of time, the bank is willing to pay you a higher interest rate.

You can loan money to the government by purchasing T-Bills or TIPS, or to cities through municipal bonds. You are loaning these entities money, and in return they pay you interest. You can also loan companies money by purchasing their bonds.

As you can see, purchasing stock is the most common example of the Owning category, while purchasing bonds is the most common example of the Loaning category. If you want to invest in a company, you can chose to own part of it by purchasing stock, or loan the company money by purchasing a bond. If you want to invest in real estate, you can either own the real estate, or you can loan someone else money in the form of a mortgage.

Have you ever thought about investing in the form of Owning vs. Loaning? Does this help to simplify how you can earn money in the market? Please feel free to share your thoughts!

I would like to credit my mentor Rick Kahler for introducing me to this simplified way of viewing investing

The post Owning vs. Loaning – How Will You Invest In The Market? appeared first on Serenity Financial Consulting, LLC.

About the author

Alan Moore, CFP®, MS
Alan Moore, CFP®, MS

Alan is passionate about providing individualized financial advice to individuals and families, regardless of their net worth, income or investable assets. An educator at his core, he strives to serve as his clients’ guide, available to help with the sometimes stressful or exciting financial situations that life inevitably brings.

Alan is the founder of Serenity Financial Consulting, which he started after noticing the lack of hourly, as-needed financial planning advice available to consumers. With experience working in several nationally recognized firms including Kahler Financial Group and Financial Service Group, Alan combines his industry experience and technical knowledge with his entrepreneurial spirit and penchant for teaching others to create a refreshing style of truly personal financial planning.

Alan is a Certified Financial Planner™ professional and Certified Retirement Counselor™. He earned his bachelor’s degrees in Family Financial Planning and Consumer Economics and his Master’s Degree in Family Financial Planning from the University of Georgia. Driven by his desire to educate, Alan also taught undergraduate financial planning courses while in graduate school.

Alan prides himself on being active in his community and feels privileged to have served in the Georgia National Guard for four years before receiving an honorable discharge. Originally from Georgia, Alan now lives in Shorewood with his wife Melissa, and enjoys taking advantage of the abundance of activities that Milwaukee has to offer.

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