Investing 101: What New Investors Need to Know
InvestmentMay Is National Investor Education Month: Investing 101Many of us have heard the term “investments” used in many ways - and it’s a concept most of us are familiar with to some degree. But unless you’ve really taken an interest in the markets or set aside time to study them, you may not have a total understanding of what investing is, everything involved with investing or what different types of investments are out there. But before you do a deep dive into theories, past performances or principles, we’ll get you up to speed with the basics of investing and what you should know as you look to grow your financial knowledge. What Is Investing?In its simplest form, investing is the process of giving money to another entity (such as the government or a company) with the hope that they will return more money to you (a profit) at a later time. While it sounds simple enough, giving money to another with the expectation of gaining more in return introduces the idea of weighing risk versus reward. Understanding RiskRisk refers to “the potential of losing your money when investing, or the level of uncertainty regarding what you will earn or lose on your investment.”1 How does this relate to investments? In general, the higher the risk of an investment, the greater the potential reward. Every investment vehicle and product comes with its own set of risks, from determining how quickly an investor will be able to access their money when they need it, to figuring out how fast their money will grow where it is. Everyone’s tolerance for risk is unique to them. A common determining factor may be a person’s time horizon, such as how far away they are from retirement, or how close they are to needing access to the money invested. Another factor could be considering how much money you’re willing to risk losing without affecting your lifestyle or jeopardizing your needs. If Investing Is A Risk, Why Do It?Due to inflation, the value of a dollar in your hand (or under the mattress) is continuously deteriorating - which is what makes investing an appealing choice for many. The idea is to put a certain amount of your dollars in a place where they’re expected to earn more in the future (assuming a positive return is earned) than a dollar left sitting in savings. Common Types Of InvestmentsYou’ve likely heard of the term “diversification” in regards to investing. Diversification refers to having a variety of different asset classes or investment types in your portfolio. This is an important strategy investors use to help reduce risk. Here are a few common types of investments you could use to diversify your portfolio:
It’s important to understand the basics of what investing is, how diverse your options are and the risks involved with seeking returns. We are here to help! Reach out to discuss your investing options with us. | |
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This information has been drawn from sources believed to be reliable. Every effort has been made to assure the accuracy of the information, however, the accuracy of this information is not guaranteed. All investing is subject to risk, including possible loss of money you invest. Diversification does not ensure a profit or protect against a loss. The information provided in this commentary is for informational purposes only and is not a solicitation to buy and/or sell. Investors must consider the investment objectives, risks, charges and expenses of any investment carefully before investing. Avisen Wealth Management (Member FINRA/SIPC) does not provide tax or legal advice. Please consult your accountant &/or legal counsel for guidance. Avisen Wealth Management, CA Ins License #0E52062 |