Here are some principal investment terms:
- Investment Objectives are usually based upon three factors: risk tolerance, volatility, and return on your investment.
- Risk Tolerance is the amount of risk or loss an investor is willing to tolerate. It is measured on a continuum that moves from conservative, to moderate, to aggressive.
- Volatility is the “up and down” value of a stock at any given time in the stock market.
- Return is a percent of money that you earn on your investment.
- Diversification is a way to manage risk that combines different types of investments within a portfolio.
- Prospectus is a formal document that is required by and filed with the Securities and Exchange Commission (SEC), providing details about an investment offering to the public.
- Stock is ownership in a public company or corporation. Stock is sold to raise money for expansion or debt reduction. Here are some stock examples:
- Blue-Chip Stocks are the largest, more stable companies in the country, such as Coca-Cola, Disney, and IBM.
- Growth Stocks are usually in smaller and newer companies with the potential to appreciate rapidly in market value.
- Income Stocks are from stable companies that pay large dividends, such as Pharmaceuticals, Telecommunications, and Oil.
- Value Stocks are in companies whose market price is lower than the company’s sales, earnings, and overall financial value.
- International Stocks are from companies in developed and emerging economies
- Developed economies such as Western Europe, Canada, Australia, Japan, etc.,
- Emerging economies such as Latin America, China, India, Indonesia, etc.
- Stockholders own shares of the company and earn money based on the number of shares owned.
- Bonds are loans. When you buy a bond, you loan money, called the principal, to an organization, and they pay back the money (principal) plus interest at a set time in the future.
NOTE: The relationship between stocks and bonds is that when the stock market goes up, the bond market usually goes down and vice versa.
- Mutual Funds are operated by professional money managers who combine money from the investing public and use that money to buy securities like stocks, bonds, and money market instruments.
- Real Estate is categorized as: residential, commercial, industrial, undeveloped, and special use.
- Commodities are most often used as inputs in the production of other goods or services. Some examples of commodities include: grains, gold, beef, and natural gas.
Remember we put Investment Objectives and Risk Tolerance at the top of our list for a reason. These are key to investing and reaching your goals.
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