Investments 101
Managing your personal finances and growing your hard-earned money by investing is crucial. If you're clueless on what to do with your money, or want to invest and just don't know what to invest in or how, then this is the article for you.
Investing in Bonds- Bonds are loans. This means whoever issues the bond, is receiving a loan from the purchaser and promising to pay that loan back over time with interest. There are three main types of bonds, government, municipal and corporate bonds. Government bonds are the simplest form of bond investment. They can be acquired from a broker or from the government directly online. There are different time frames for purchasing government bonds. For instance, any government bond with a maturity of one year or less is a treasury bill, any government bond from two to ten years is a treasury-note and anything longer is called a treasury bond. Municipal bonds are similar to government bonds. If a city needs to raise capital on top of the taxes they issue bonds. If a company needs to raise capital on top of the stocks they issue, they may issue bonds. Depending on the situation of the company, corporate bonds can be much riskier than government bonds because the government has never defaulted on a loan. If a company needs to raise some money quickly and choose to issue bonds, those bonds will be ranked on their reliability. The best kind of corporate bond is a AAA bond. Then there is a BBB bond, etc... The lower the grade of the bond, the higher the interest. This attracts more people wanting to purchase that bond, however, anything lower than a BB bond may have a high interest but is risky. These are called junk bonds. Usually when a company has an extremely high return rate (10%+) on their bond, they are probably on the verge of going bankrupt.
Investing in Mutual Funds- A mutual fund is when a very large group of investors pool their money together and give it for someone to manage. This manager then invests their money mainly in stocks and bonds. Mutual funds are great for beginner investing because you can invest in them without having to worry about always doing your research. Another advantage to the mutual fund basics is the immediate diversification. Mutual funds are relatively low risk, yet can still average around 10-12% interest on your investment per year. They are low risk because of the diversification. Also, mutual funds must comply with rules and regulations of the SEC. This insures and protects you the consumer. Like bonds, there are graded mutual funds. The only homework you have to do with mutual funds is which fund to pick since there are so many to choose from.
Investing in Stocks- Stocks may be the most important and profitable investment out there. A stock is a share in a company. When a company wishes to generate money on top of their profits from revenue, they may issue private stock. If you purchase stock in a company, you gain partial ownership in the company. Depending on the stock and the company, you will be taking small risks to big gambles. Stock research is very important. You must do your research before you purchase stock in a company. Analysts are very important when it comes to useful information and stock research. Look under the Analyst estimates to see where the company ranks now, and where they are predicted to go in the future. You can see the growth percentage for Google now, next year, and 5 years from now.
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