Tuesday, December 25, 2018
When it comes to investing and financing, I know very little. Be that as it may, had I been trying to write about a slightly different topic from my usual trend. At least for my last post of 2018 that is.
In the following, I will be tackling elementary terms and concepts most commonly used in investing. My focus will be on the well-known 401K plan.
For starters, let us define what the 401K plan is. In simple terms, it is a retirement savings plan sponsored by an employer. It allows workers to save and invest part of their paycheck before taxes are deducted from it. Thus, it is imperative for employees to have a solid foundation of how to properly manage their financial resources available. In other words, how to invest that particular part of their income wisely. Now that the aforesaid concept has been taken care of, let us move on to the simple terms: Stock, bond, and cash.
To start with, we will be addressing stock. It mainly means ownership in a company. More specifically though, "part of the ownership of a company that can be bought by the public". Among the major ways to classify stock we have: Size or market capitalization (cap) and company location. It goes without saying that each classification has its own level of risk. As you may also know, if the value of the company increases, the stock price rises and vice versa. It is also worth noting that a company can share its yearly profit in the form of a dividend. On the other hand, we have bonds. A bond is, in simple terms, a loan to a company or government. They borrow by selling a bond, which is a promise to repay the buyer in a fixed number of years at a fixed interest rate. Case in point, when the US government borrows money, it does it from its citizens. Through the investments they make in bonds that is. If interest rates drop after you buy a bond, its value rises. When the opposite happens of course, the bond's value decreases. How much the value of the bond will change depends on how long it is. The longer the bond, the more risk you will take. Still and all, bonds are considered less risky than stocks. Lastly, we have cash. There is little risk that this asset will lose value. Notwithstanding. holding too much money can lead to it losing part of its worth. Cash loses value over time. For instance, in 1950 you could actually purchase a Coke for 5 cents. However, today you can barely buy anything with such small amount of money.
Hopefully, I have shed some light on this issue. Something I neglected to mention earlier was that most people with 401K plans invest in mutual funds. "A mutual fund is a service where financial experts invest the money of several people in many different companies". Bear in mind also that in order to invest well, you need to diversity. In other words, have several different options available.
Sources:
- Smart Investing Trends YouTube Channel.
- Cambridge Dictionary.
Sunday, December 9, 2018
The field of psychology is one I have been particularly interested in for the past few years. Thanks to a close friend, it was recently brought to my attention how theories of emotion tackle our reactions to unexpected situations. In the following post, I am going to address four of these theories to the best of my ability and compare them with each other.
To begin with, we have the theory of James-Lange, which in fact were two different people who developed quite similar theories around the same time (1800s). They suggested that the emotions we experience are owing to the perception of our physiological responses. For instance, holding your pet cat may bring on physiological responses such as increased heart-rate, neuro-transmitter levels changing so as to make you smile, among others. Thus, making your interpretation of these responses happiness. On the other hand, we have the Cannon-Bard theory of emotion. They both proposed that both physiological responses and emotions themselves take place at the same time. Not to mention they also brought into consideration the fact that some responses are related not only to one emotion, but to several of them. Case in point, our hear-rate rises after a long run as well as when we are scared.
Back the cat example. We realize we are happy at the same time as our responses are being caused by the experience of holding the cat.
Furthermore, there are two more relevant theaories: The Scahcter- Singer Theory of Emotion and the Lazarous Theory of emotion. The first one proposes that if we react in particular way to a particular event, we are not able to feel a specific emotion until we have identified the situation taking place.
The Lazarous Theory suggests that an appraisal of the situation should come first. In other words how we appraise a situation is based on personal experience. To illustrate this point, let us yet again work with the cat example. If the cat happens to be our friend's and he hands it to us so that we can hold it, our reaction to it may be either positive or negative. If we are not keen on cats, then our reaction will be negative. Then, our physioligical responses will also change, and the emotion we feel might be either repulsion or fear.
In summary, being able to understanding what is happening while we are experiencing a strong emotion could help us control ours better. There may be some exceptions to the rule. Nonetheless, responding positively to most unexpected negative situations can prevent us from compounding the problem even more. Hence theories such as the ones mentioned above could serve as the groundwork we need so as to start managing and assessing our emotions more effectively from now on.
Sources:
- Khanacademymedicine YouTube Channel.
- Personal experience.
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