Stock Market vs Bond vs Options

Stock Market vs. Bond Market vs. Options Market

Investing in paper markets can be intimidating if you don’t have a guide or mentor. I would guess that the overwhelming majority of people will never invest directly in financial markets (also called risk markets).

It is a shame because you can grow your wealth much quicker with paper assets than by working your 9-5 job.

However, these markets can be pretty dangerous if you don’t understand how to control your emotions and navigate their nuances.

Diversify Your Home Equity

I started investing in paper assets four years ago, and my journey has been rewarding. I have read lots of books and put that knowledge into action. Now, I want to help guide you toward this exciting hobby.

Why learn about the financial markets? Everything you do in life, except for relationships, runs on the foundation of these financial markets.

Understanding these financial markets (bond, stock, options, commodity, cryptocurrency, real estate) is essential to making your mark in this world.

Without a deep understanding of how everything relates to you and your life, you’ll be at the mercy of the nameless, faceless corporate entities.

Pay Your Bills with Dividends

Starting with the bond market. Everything begins with the bond markets, specifically the US Treasuries.

Treasuries trade on the biggest market in the world, where institutions and countries come to earn a yield on US government debt.

As an individual investor, you must follow the Treasury market religiously because these rates control everything.

You see, investors consider Treasuries risk-free investments. So it’s vital to understand how much yield you can get against a risk-free asset.

Middle-Class Investing 109: Income Investing

If the 5-Year Treasury Note yields 5%, does investing in a dividend-paying stock that produces 4% make sense?

Other bonds, such as mortgage-backed securities, municipal, and corporate, compete against Treasuries. Then, growth and dividend stocks compete against safe Treasuries for investor dollars.

The Bond Book” should be your first investment book. I know stocks are much sexier than bonds, but their relationship is vital to your long-term success.

Moving on to the stock market. The stock market gets all the attention, although the bond market is much larger.

Increase Your Savings Rate

You invest in equity products on the stock market versus debt on the bond market. Equity is much riskier than debt because equity is subjective and inconsistent.

Essentially, the bank owns your mortgage (debt), but you can profit from your house price going up (equity). However, there is no guarantee that your house will rise in value, just like on the stock market.

There are many ways to invest in the stock market (index funds, growth, high-yield, dividends), so you must have a clear goal in mind.

Five Takeaways from “Unscripted: The Great Rat Race Escape”

Do you want to invest in the next Apple (AAPL) or Google (GOOG) or start receiving dividends to improve your lifestyle?

Either way, don’t jump into the stock market without reading a book or two. I am a hardcore dividend investor, so I read “The Intelligent Investor” and “How to Retire on Dividends.

Most young investors jump directly into high-risk, high-reward growth stocks. They believe they can double or triple their money in 3-6 months. Sadly, that’s not how the world works.

Your Daily Routine Is Your Success

You may hit the jackpot once or twice, but in the end, this type of investing is akin to gambling. The stock market can be quite tame if you have the right mindset and temperament.

Finally, let’s trade options. You can make lots of money trading options, but you can also lose much more than you had.

The options market is where people speculate on prices moving upwards or downwards. It can be quite a zest pool.

I trade options safely by using protected trades. This means I either own the stock (covered calls) or have the money (cash-secured puts) on every option contract I trade—I use no leverage.

Compound Interest: You Can Earn It or Pay It

I sell options to other market participants, which means I receive a premium for every contract I trade. This allows me to earn passive income without speculating.

Other traders use complex options with 2-4 legs to attempt to extract every dollar from the options and stock markets.

My version of options trading is much more tame and passive. I am here to generate 10% monthly returns on my invested capital. 

If you understand interest rates and rates of return, 10% per month equates to more than 100% per year—which is insane.

Middle-Class Investing 108: Dividend Growth Investing

I have only traded options briefly, but I am eager to see the long-term stats of safely trading cash-secured puts and covered calls. Stay posted for more on my options trading career.

Two books to read are “The Options Playbook” and “Covered Calls for Beginners.

Putting it all together. So why did I compare these three markets? Because it is nearly impossible to start trading options without working through the other markets.

If I tell the average person I trade options, they will think I am a high-risk lunatic. They barely use a high-yield savings account, let alone investing in stocks.

Home Buying for the Average Person 2

I want to recreate a path to get more people to the promised land of dividend stocks, bond payments, and option contracts.

Seriously, you can earn $1,500 to $2,000 monthly trading options on $20,000 of invested capital. But to get to this point, you have to do all the prework; there are no shortcuts.

Conclusion. Every year I move deeper into the financial markets. I learn more about debt (bonds), equity (stocks), and derivatives (options).

The more I learn, the richer I become; but I did the prework. I also learned how to get rich slowly; no shortcuts or cliff notes exist.

Start by understanding bonds if you seek a path to build wealth and live a fantastic life. You’ll learn how interest rates affect every aspect of your life.

Middle-Class Investing 107: Index Funds

From there, learn what kind of stocks you intend to trade. Do you love growth (QQQ) or value (DIA) index funds, for example?

Finally, do you have the fortitude to trade options safely? Can you avoid using margin at all costs? Margin is when you borrow money to speculate on price movements.

Avoid using margin in everything. Learn how to create a wealth generator outside the stock market instead of borrowing from the bank.

I will continue documenting my journey deep into the financial markets, hopefully giving you the courage to join me. Good Luck! 

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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it.  I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing


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