The Basics of Investing: - Gustavus Adolphus College

The Basics of Investing: - Gustavus Adolphus College

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, dont settle for a low return on your investment Buy low expense Mutual Funds Dont 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

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