Posts Tagged "stock"

Can you Diversify too much?

Posted by Preet on Jul 31, 2007 | 0 comments

This is a tricky topic to talk about.  So please read the caveat at the bottom of this post! The wealthiest people in the world have, on average, made their fortunes on ONE stock… and that is usually the stock of the company they themselves founded and ran in the form of a small business that just kept expanding.  But of course for every small business that becomes the next GOOGLE, there are countless more that fail and go under. This is the ultimate example of why you won’t get rich quickly by diversifying AND how you could lose everything quickly by NOT diversifying. Understanding this debate is understanding the trade off that you want to make...

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What is "Diversification"? There is more to it than you might think!

Posted by Preet on Jul 31, 2007 | 0 comments

Diversification basically means not putting all your eggs in one basket. If you hold only one stock and that company went bankrupt, then you would have lost all your money.  If you hold two stocks and one company goes bankrupt you have only lost half your money.  And so on, and so on. But there is a BIT more to it than just that. If you held two stocks in companies like Sprint and Verizon and someone invents a device that makes phones obsolete, then both companies might go under.  In this case you have diversified by holding two companies, but you picked two companies in the same industry! Further, if you held two mutual funds that both invested in large Canadian...

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How do banks make money on Savings Accounts?

Posted by Preet on Jul 25, 2007 | 0 comments

You’ve all seen the adds for the “no fee” savings accounts being offered at various institutions. Have you ever wondered how the banks make money on those accounts? To really simplify it, it is basically as follows: When you deposit your money into a savings account, you agree to be paid interest from the bank, which for the purpose of this post we will say is 4%. Now the bank will take that money and turn around and give it to someone in the form of a mortgage so they can buy a house and charge them 6%. So the bank COLLECTS 6% from mortgage holders and PAYS 4% to savings account holders. The difference between the 6% and the 4% is known as...

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