Investing for the Future
Basic Investing Concepts
Investing - The use of long-term savings to earn a financial return.
Inflation - A rise in the general level of prices.
Rule of 72 - A technique for estimating the number of years required to double your money at a given rate of return.
Rule of 72 is a quick way to evaluate an investment's rate of return.
Increase Wealth by Investing
Your financial success grows from assets that you build up over time. By investing, it helps you accumulate wealth faster than if you simply saved your excess cash in a savings account. When you invest in stocks and bonds, you are participating in helping businesses make and sell new products and services, so therefore you will be rewarded with dividends and interest.
Initial Investing
Really begins when you have "excess" savings beyond what you need for daily expenses and emergencies.
Initial Investing, should be conservative with low risk. At this stage, you don't have a lot of money to invest, so you don't want to risk losing it.
Portfolio - Collection of investments over the next five to ten years.
Speculative Investing happens when you make bold and high-risk investment choices.
Risk averse is when your afraid to make investments in which they might lose some or all of their investment.
Investing Risk - The chance that an investment's value will decrease, but all types of investing involves some degree of risk.
Diversifacation - The spending of risk among many types of investments.
Market Risk
Market risk is caused by the business cycle periods of economic growth or decline.
Criteria For Choosing An Investment
- Degree of safety (risk of loss)
- Degree of liquidity (ability to get your money quickly)
- Expected dividends or interest
- Expected growth in value, preferably exceeding the inflation rate
- Reasonable purchase price and fees
- Tax benefits
Full-service brokers provide clients with analysis and opinions based on their judgments and the opinions of experts at the company they represent. Below are some well-known full-service brokerage companies.
- Merrill Lynch
-Fidelity Investments
- American Express
Discount brokers buy and sell securities for clients at a reduced commission. Below are some good examples:
- Charles Schwab
- TD Ameritrade
- E*TRADE
Annual Report - A summary of a corporation's financial results for the year and its prospects for the future.
Bonds - Debt obligations of corporations or state or local governments.
Stock - A unit of ownership in a corporation.
Annuity - A contract that provides the investor with a series of regular payments, usually after retirement.