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Kinds of Investments:
Money Market: these products are similar to a
savings account, where your money earns a
fixed or variable rate of interest, but where the
principal or initial amount deposit is not subject
to loss or variance. These are typically where
you want to keep funds that you may need in the
short term, over the next 1 to 6 months for
example. They will typically pay higher interest
than a savings account and with no payout
restrictions.
CDs: Certificates of Deposit. These are similar to
Money Market accounts, but with a fixed interest
rate and typically with a fixed required term.
Penalty fees or lost interest may apply if the
funds are withdrawn prior to the agreed payout
date. However, these accounts will typically pay
more than savings accounts or Money Markets
accounts.
Stocks (Equities): A stock is a form of ownership
of a company, typically a publicly traded one.
One can buy shares of stock, which are the units
of ownership that are sold. These shares will
generally have a traded value, that varies
continuously. These shares may be traded on a
public exchange, such as the NYSE or the
NASDAQ.
Bonds: a bond is a debt instrument of a firm.
This means a company has borrowed money
and has been issued a note which outlines
repayment terms including interest rate and time
period of payback. This note has been
securitized and broken up into shares, which are
sold and traded among the public and public
institutions. These are also often traded on
public exchanges.
An investor purchasing a share(s) is entitled to
payback of the principal at some point in the
future, although they will likely sell the share
before that time. They will also be entitled to the
periodic interest payments, known as coupon
payments. For some bonds, the interest is not
paid until the end of the term.
The price of a bond can and usually does
fluctuate, even though there is generally a fixed
payback amount to be made. Because the
payment amounts are a given, however, the
range of price of a bond is normally much
narrower than that of a share of stock, and so is
considered much safer. Of course, the safety of
any bond is most dependent on the financial
health of the underlying company that issued the
bond. A bond is sort of a hybrid between stock
and a savings account or CD, as one can get
both price appreciation and interest payments –
and with a risk level between the two.
Real Estate: an investment in real estate is a
good way to diversify one's investments in
securities. One may think of this investment in
terms of one's own property, although it does
not necessarily mean that. Real estate, in terms
of home ownership and direct investment will be
dealt with in the Real Estate section.
There are a few other ways: One can invest in
Real Estate Investment funds (REITs, for short).
These are funds that accumulate money from
individual investors and invest in RE related
projects. These are a form of mutual fund (see
below).
Another way to invest in RE is to invest directly
or indirectly in publicly traded construction
firms, homebuilders, or home furnishing
companies.
Mutual Funds: We've referred before to
purchasing stocks or bonds. Another away to
invest in them is to invest in a fund that
combines the monies of many investors and, in
turn, invests them in many stocks. These are
called mutual funds. These funds usually employ
professional stock analysts and portfolio
managers to select and trade stocks into and out
of the fund. The advantages include, in addition
to above, are an automatic diversification effect.
Diversification is the selecting of many stocks
such that the overall return produces an average
return for the group, while averaging away many
of the extreme returns, positive or negative. It’s a
safer return and does not require the individual
to buy many stocks to achieve it. It may save the
individual on transaction (brokerage) fees over
time as well.
Mutual funds can come in many different types,
often centered around particular classes of
securities. For instance, one stock mutual fund
may concentrate on growth stocks, another may
invest in only stocks that provide steady income
(dividends). Another may contain only certain
types of bonds.
One can invest in these types of funds directly or
through a retirement plan, which is discussed in
a separate section on this site.
Commodities: a commodity, in this sense, is any
store of value that is publicly traded - natural
resources such as gold or silver, livestock,
currencies, and others. These are generally
traded in futures contracts on one of a few
public exchanges. I wouldn't recommend
commodity trading for non-professionals, but
there are also commodity based mutual funds
that might be worthy of consideration. For most
investors, commodities investing is both a
hedge both against inflation and a general
diversification investment. It helps diversification
since its returns may be relatively uncorrelated
with the returns of other investments, such as
stocks.
Which type of Investment(s) are right for you?
A big reason to have a preference for one type of
investment vs. another is your age / time horizon
and risk profile.
Age / Time Horizon: This is the amount of time
until you would like to cash out your
investments. This can be associated with
retirement or a major purchase such as a home.
Generally speaking, the older you are, the more
conservative your investments should be.
Although all of the investments mentioned have
shown positive returns when measured over
longer periods of time, stock funds and the like
can vary in value over time. If one is nearing
retirement or some other time of great cash
need, one may not be able to wait until any
downturn reverses itself. For this reason any
investor within 5 to 10 years of retirement or
cash need should shift their investments toward
low risk income stocks, bonds and fixed interest
securities/funds.
On the other hand, someone who is 35 yrs old
and/or with a 30 year time horizon may want to
consider higher growth securities such as
growth stocks and real estate, or a higher
percentage of these types of stocks relative in
his/her portfolio. This person will be able to
withstand many ups and downs of the market,
thereby enabling him/her to get the highest
overall average return over time. In the long run
stock funds have almost always outpaced the
returns on any other investments.
Investment Goals and Risk aversion: Every
person may have a different degree of risk
aversion. This is the ability or willingness to take
risk. Here, it means the willingness to withstand
investment losses. A person must decide for
him/herself what amount of investment loss,
over what period of time, they are able and
willing to tolerate. Those who can’t withstand
losses should steer a higher percent of their
investments to safer vehicles, such as bond
funds and fixed interest rate securities – those
with a higher ability to take risk can shift more
toward growth stocks. As in above, there is
normally a significant time element involved here.
Although the highest earning long term
investment approach has always been a
portfolio dominated by growth stocks, one
should not adopt a portfolio position that is
riskier than one can truly be comfortable with.
Back to Top
Money Market: these products are similar to a
savings account, where your money earns a
fixed or variable rate of interest, but where the
principal or initial amount deposit is not subject
to loss or variance. These are typically where
you want to keep funds that you may need in the
short term, over the next 1 to 6 months for
example. They will typically pay higher interest
than a savings account and with no payout
restrictions.
CDs: Certificates of Deposit. These are similar to
Money Market accounts, but with a fixed interest
rate and typically with a fixed required term.
Penalty fees or lost interest may apply if the
funds are withdrawn prior to the agreed payout
date. However, these accounts will typically pay
more than savings accounts or Money Markets
accounts.
Stocks (Equities): A stock is a form of ownership
of a company, typically a publicly traded one.
One can buy shares of stock, which are the units
of ownership that are sold. These shares will
generally have a traded value, that varies
continuously. These shares may be traded on a
public exchange, such as the NYSE or the
NASDAQ.
Bonds: a bond is a debt instrument of a firm.
This means a company has borrowed money
and has been issued a note which outlines
repayment terms including interest rate and time
period of payback. This note has been
securitized and broken up into shares, which are
sold and traded among the public and public
institutions. These are also often traded on
public exchanges.
An investor purchasing a share(s) is entitled to
payback of the principal at some point in the
future, although they will likely sell the share
before that time. They will also be entitled to the
periodic interest payments, known as coupon
payments. For some bonds, the interest is not
paid until the end of the term.
The price of a bond can and usually does
fluctuate, even though there is generally a fixed
payback amount to be made. Because the
payment amounts are a given, however, the
range of price of a bond is normally much
narrower than that of a share of stock, and so is
considered much safer. Of course, the safety of
any bond is most dependent on the financial
health of the underlying company that issued the
bond. A bond is sort of a hybrid between stock
and a savings account or CD, as one can get
both price appreciation and interest payments –
and with a risk level between the two.
Real Estate: an investment in real estate is a
good way to diversify one's investments in
securities. One may think of this investment in
terms of one's own property, although it does
not necessarily mean that. Real estate, in terms
of home ownership and direct investment will be
dealt with in the Real Estate section.
There are a few other ways: One can invest in
Real Estate Investment funds (REITs, for short).
These are funds that accumulate money from
individual investors and invest in RE related
projects. These are a form of mutual fund (see
below).
Another way to invest in RE is to invest directly
or indirectly in publicly traded construction
firms, homebuilders, or home furnishing
companies.
Mutual Funds: We've referred before to
purchasing stocks or bonds. Another away to
invest in them is to invest in a fund that
combines the monies of many investors and, in
turn, invests them in many stocks. These are
called mutual funds. These funds usually employ
professional stock analysts and portfolio
managers to select and trade stocks into and out
of the fund. The advantages include, in addition
to above, are an automatic diversification effect.
Diversification is the selecting of many stocks
such that the overall return produces an average
return for the group, while averaging away many
of the extreme returns, positive or negative. It’s a
safer return and does not require the individual
to buy many stocks to achieve it. It may save the
individual on transaction (brokerage) fees over
time as well.
Mutual funds can come in many different types,
often centered around particular classes of
securities. For instance, one stock mutual fund
may concentrate on growth stocks, another may
invest in only stocks that provide steady income
(dividends). Another may contain only certain
types of bonds.
One can invest in these types of funds directly or
through a retirement plan, which is discussed in
a separate section on this site.
Commodities: a commodity, in this sense, is any
store of value that is publicly traded - natural
resources such as gold or silver, livestock,
currencies, and others. These are generally
traded in futures contracts on one of a few
public exchanges. I wouldn't recommend
commodity trading for non-professionals, but
there are also commodity based mutual funds
that might be worthy of consideration. For most
investors, commodities investing is both a
hedge both against inflation and a general
diversification investment. It helps diversification
since its returns may be relatively uncorrelated
with the returns of other investments, such as
stocks.
Which type of Investment(s) are right for you?
A big reason to have a preference for one type of
investment vs. another is your age / time horizon
and risk profile.
Age / Time Horizon: This is the amount of time
until you would like to cash out your
investments. This can be associated with
retirement or a major purchase such as a home.
Generally speaking, the older you are, the more
conservative your investments should be.
Although all of the investments mentioned have
shown positive returns when measured over
longer periods of time, stock funds and the like
can vary in value over time. If one is nearing
retirement or some other time of great cash
need, one may not be able to wait until any
downturn reverses itself. For this reason any
investor within 5 to 10 years of retirement or
cash need should shift their investments toward
low risk income stocks, bonds and fixed interest
securities/funds.
On the other hand, someone who is 35 yrs old
and/or with a 30 year time horizon may want to
consider higher growth securities such as
growth stocks and real estate, or a higher
percentage of these types of stocks relative in
his/her portfolio. This person will be able to
withstand many ups and downs of the market,
thereby enabling him/her to get the highest
overall average return over time. In the long run
stock funds have almost always outpaced the
returns on any other investments.
Investment Goals and Risk aversion: Every
person may have a different degree of risk
aversion. This is the ability or willingness to take
risk. Here, it means the willingness to withstand
investment losses. A person must decide for
him/herself what amount of investment loss,
over what period of time, they are able and
willing to tolerate. Those who can’t withstand
losses should steer a higher percent of their
investments to safer vehicles, such as bond
funds and fixed interest rate securities – those
with a higher ability to take risk can shift more
toward growth stocks. As in above, there is
normally a significant time element involved here.
Although the highest earning long term
investment approach has always been a
portfolio dominated by growth stocks, one
should not adopt a portfolio position that is
riskier than one can truly be comfortable with.
Back to Top
| Investments |
This page will help you understand more about
different kinds of investments - What they are
and which ones are appropriate for you based on
your age, lifestyle status and risk profile.
different kinds of investments - What they are
and which ones are appropriate for you based on
your age, lifestyle status and risk profile.
Have Questions? Our consultants are available to help you with any financial
question. We can also provide in-depth consultation concerning any financial issue
facing you. We can help. Please contact: Best-Financial-Advice.com
question. We can also provide in-depth consultation concerning any financial issue
facing you. We can help. Please contact: Best-Financial-Advice.com
 | |  | |  | |  | |  | |  | |  | |  |
Have Questions? Our consultants are available to
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
 | |  | |  |
Have Questions? Our consultants are available to help you with any financial
question. We can also provide in-depth consultation concerning any financial issue
facing you. We can help. Please contact: Best-Financial-Advice.com
question. We can also provide in-depth consultation concerning any financial issue
facing you. We can help. Please contact: Best-Financial-Advice.com
Have Questions? Our consultants are available to
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
Have Questions? Our consultants are available to
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
Have Questions? Our consultants are available to
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com
help you with any financial question. We can also
provide in-depth consultation concerning any
financial issue facing you. We can help. Please
contact: Best-Financial-Advice.com