Do Your Investment Homework
For many people, their only experience with the stock market comes from the media. The picture that comes to mind is the quintessential trader in a suit waving his hands while shouting, "Buy!" and "Sell!" It's time to get a clearer picture of how the stock market actually works.
Let's start by exploring what that trader may be buying and selling. There are many different types of investments. All investments involve some risk. Some investment options are better suited for short-term investment, and others are better for long-term plans. What is the best way to get started? Determine your goals and research the best options available for you to meet those goals.
Here are a few options you may want to consider while you research your investment options. As always, learn as much as you can about each option. Be sure to consult with a reputable financial professional to help you make the best choices for your needs and for your future.
Money Market Accounts
A money market account is a short-term investment option closely related to a savings account. Money market accounts are savings accounts insured by the Federal Deposit Insurance Corporation (FDIC). Money market accounts typically pay higher interest, have higher balance requirements, and have different restrictions on withdrawals than most conventional savings accounts.
Mutual Funds
A mutual fund combines money from many investors, called shareholders, and invests that pooled money in many different stocks, bonds or other assets. The combined holdings (the stocks, bonds or other assets) owned by the fund are referred to as its portfolio. Each investor, or shareholder, owns shares representing a portion of these holdings. The four major types of mutual funds are fixed-income funds, balances funds, index funds, and equity funds. A personal investment manager typically manages individual mutual funds.
There are two major types of investments typically made by mutual funds:
Stock Mutual Funds
When you invest in stock mutual funds, your investments are used to purchase stocks. Stocks are ownership in a publically traded company. An investment manager purchases stock mutual funds. Because you own a small piece of the company, your investment will rise or fall depending on how well the business does.
Bond Mutual Funds
Bond mutual funds work the same way as stock mutual funds, except that the investment manager invests in bonds. Bonds are essentially reverse loans. With a regular loan, such as an auto loan, you borrow money from a bank and pay it back with interest. With a bond, a business borrows money from you and pays it back with interest, often at a fixed rate.
Both stocks and bonds can be purchased separately from a mutual fund. This requires that you are willing to trade and manage your investments on your own. This can work out very well if you prepare correctly and make smart choices.
So, should you trust your money to a mutual fund professional or manage it yourself? In order to know what is best for you, it's necessary to do research and to possibly seek advice from an experienced professional. The business of investment is broad and requires patience, discipline, and a willingness to learn.
