The Basics of Investing

The Basics of Investing:

• Know what to do with your money or what others are doing with your money!

Investment Terms to Know

• Investment: The commitment of funds to one or more assets that will be held over some future time period
• Risk: The chance that the actual return will be different from the expected return
• Passive Investment Strategy: A strategy that determines initial investment proportions and assets and makes few changes over time
• Active Investment Strategy: A strategy that seeks to change investment proportions and/or assets in the belief that profits can be made

More Terms to Know

• Direct Investing: Investors buy and sell securities themselves, typically through brokerage accounts.
• Indirect Investing: The buying and selling of the shares of investment companies, which, in turn, hold portfolios of securities

Why Should I Invest?

• Retirement: Investment in the long-term which means you can ride the market
• Large Purchases (House): Invest in safer securities (Short-term)
• School: Invest in safer securities, the sure investments

What Can I Invest In?

• Money Market Securities:
• Treasury Bill
• Negotiable CDs
• Fixed-Income Securities:
• Bonds
• Asset-Backed Securities

• Equity Securities:
• Stocks
• Derivative Securities:
• Options
• Future Contracts

Diversification is KEY

• Diversification is the key to the management of portfolio risk because it allows investors to significantly lower portfolio risk without adversely affecting return!
• International diversification is important
• A portfolio with 40 different stocks is said to be adequately diversified

Investing Tips

• USE 401K
• Flee the Bank – There are higher yielding investments out there, don’t settle for a low return on your investment
• Buy low expense Mutual Funds – Don’t pay too many fees
• Buy and hold – Avoid high commission fees and higher taxes

IMPORTANT INVESTING FACTS TO KNOW

• Only 33% of money managers outperform the market!
• Historically Stocks return 11%, Bonds 5%
• Passive Investment is the best way for most investors