Investing 101, Great Summer Study
$KO, $NKE, $HD, $URBN, $DKS
Investing books may not sound like a thrilling beach read, but you may should get up to speed and read investments books and articles while sitting on the deck or patio during the Summer.
Investing has the power to change your life.
Below is an overview introduction to the world of investments.
Most people invest to reach certain goals. These could be general, such as “build wealth” or “preserve existing capital, or the goals could be specific, like retire by age 60, pay for children’s college, or save for the down payment on a home.
The amount one should invest depends on the goal.
Financial experts recommend investing 10 to 15% of your income towards retirement. This may seem like a lot, but remember that any employer match that you receive counts towards this goal.
If you save 10% of your income and your employer matches 5%, then you reach the 15% mark.
Beyond retirement, the amount you should save for other goals also depends on some Key factors.
An example: Investing for a child’s education has a target withdrawal date. You also have an idea of how much tuition and housing will cost. You can make predictions about returns based on historic averages. Based on these facts, you will have an idea of how much savings is need annually.
In Y 2015, the annual contribution limit to most 401(k), 403(b) and 457 retirement plans is $18,000, plus an additional $6,000 if you are age 50 or older. .
Types of investments to consider when investing, below is an overview.
On Stocks, as follows;
Individual stocks: you can purchase shares of a publicly-traded company, meaning you become a partial owner of that company.
- Large-caps are established multinational companies like Coca-Cola (NYSE:KO), Nike (NYSE:NKE) and Home Depot (NYSE:HD).
- Mid-caps: Companies that strike a balance between small and large, like Urban Outfitters (NASDAQ:URBN), and Dick’s Sporting Goods(NYSE:DKS).
- Small-cap: Companies you may not have heard of, they are smaller, may grow faster or they may fail.
- Bonds:Bonds are loans issued by investors (to governments, companies and other entities.
On Bond, as follows:
- Government bonds – Loans that you give to the US government, including:
(a) Bills – Mature in less than one year.
(b) Notes – Mature in 1 to 10 years.
(c) Bonds – Mature in more than 10 years.
- Municipal bonds aka muni’s- Loans to cities or towns, often tax-free for residents.
- Corporate bonds – Loans to companies.
On Mutual Funds
These are baskets of stocks, bonds and other investments selected by a fund manager or team of managers, who charge a fee for this service.
On ETF’s or Index Funds
These are mutual funds that mirror a trading index, such as US large caps or Emerging Markets.
Since these instruments are not actively-managed, the hold a much lower fee than active mutual funds.
There are a number of other investment instruments like commodities, real estate trusts, and many others, most or for professional participants and not suitable for this 101 discussion.
Understand Risk/Reward
Risk is tied to reward, meaning some investments are more likely to be volatile, while others are can show stable, steady performance. Future performance has no relation to past performance.
Most retail participants build their portfolio with a mix of risk profiles.
One part of their portfolio might be for higher-risk investments, like small-cap stocks or frontier market funds, another part might be devoted to bonds and cash equivalents, or precious metals, Gold and Silver.
As an investor one should slice the investment “pie” in pieces based on timeline, age, risk tolerance and other factors.
Everyone’s asset allocation is special to their goals.
Strengthening your financial education through a combination of books, articles, calculators, and solid advice will help you find the allocation that suits you.
Remember, it is your money and your responsibility.
Learn about investing in your future and that of your family.
Paul Ebeling
HeffX-LTN
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