Fundamentals of Investing
Diversification
by Catherine Eagan
Most any form of investment carries with it a degree of risk; some investments are more risk-laden than others, but make no mistake, the loss of money through investment is almost always part of the equation. Diversification is one important strategy for mitigating the risk associated with investing.
Portfolio Rebalancing
by Catherine Eagan
Successful selection of the right investments is rarely a one-time act. Most successful investors evaluate the performance of their investments regularly, and an annual rebalancing (or reallocation) of investment funds is common. In some cases the rebalancing is done in response to market conditions, but oftentimes it is the result of certain investments having grown (or dropped ) to levels above or below their ideal.
Stocks
by Catherine Eagan
A stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As investors acquire more stock their ownership stake in the company increases. Stock is also called equity or shares.
Bonds
by Catherine Eagan
A Bond is an agreement to repay a debt. An investor agrees to loan money to a company or government in exchange for a predetermined interest rate.
Mutual Funds
by Catherine Eagan
A mutual fund pools money from hundreds and thousands of investors to construct a portfolio of stocks, bonds, real estate, or other securities.
Exchange Traded Fund
by Catherine Eagan
An exchange-traded fund (or ETF) is an investment vehicle traded on stock exchanges, much like stocks are traded on the exchanges. For average investors, ETFs can be attractive because of their low costs, tax efficiency, and features which tend to mimics stocks.
Commodities
by Catherine Eagan
A commodity is a product that stays the same no matter how it is produced: corn, wheat, gold, oil, milk, rice, orange juice, and so on. The price of the commodity thus will fluctuate based on changes in the global supply and demand of and for the product. Contrast this with, for example, an automobile. Autos are made differently by different manufacturers, with different quality and parts specifications, and so the prices charged for automobiles will fluctuate on the basis of the quality differences.