If you have never invested your money in anything other than a typical bank savings account, you might confused about the many types of investments available. You also might wonder what some of the words used by financial planners even mean. To help prepare you for your first meeting with a financial planner, here are few key investment terms defined.
A Certificate of Deposit or CD is one common type of investment, and you usually can invest in these by simply going to the bank or credit union and looking at your options. Typically, this is a short-term investment that has a fixed expiration date, anywhere from about three months to five years. Generally, these pay a fixed rate of interest, and the advantage is that because you have agreed to leave your money in the CD for the fixed amount of time, the bank pays a higher rate of interest that it would for a typical checking or savings account.
A money market account is another common type of interest-earning vehicle, and it has some advantages over a CD. One of the advantages is that these accounts are kind of like checking accounts and you can make deposits and withdrawals from the account. With a CD, the money stays put until the term expires. Often, a money market account earns more interest than a CD, and the more money you invest, the more interest you earn. However, because the brokerage company is basically taking your money and investing it into money markets, you certainly have a higher risk of loss than with a CD.
They say that it is never too late to plan for retirement, and this is certainly true. But it's also never too early to save up, so if your employee provides a 401 (k) package, be sure to take advantage of this retirement account. Money is deducted from each paycheck, but you can choose the amount deducted and change the amount if you want to save more or need more cash. Generally your boss or employer matches the amount you invest up to a set limit. This might be $1,000 or $40,000, depending on the company. Another option is to look into setting up an IRA, which is an Investment Retirement Account.
While you might be wary of playing the stock market, you can invest in a mutual fund, which is a lower risk way to earn money from stocks and bonds. With a mutual fund, a professional fund manager finds a collection of holdings and then creates the fund and invites people to invest. You buy shares in a mutual fund and earn interest if the fund performs well. Because the investment is diversified or spread among many different holdings, it is less risky than just putting money into one company. There are thousands of mutual funds, such as China fund which invests in a variety of Chinese companies or an energy fund that would invest in many different types of energy-related companies.
Mutual funds pay a variable or changing rate of interest that depends on how well the holdings in the fund are performing, so this is potential for loss. But if the fund is well managed, you typically stand to earn a higher rate of interest than you would with either a CD or a basic savings account. This is especially true in the current economic situation, where banks are offering only very low rates of interest for CDs and interest-bearing savings and checking accounts.
A Certificate of Deposit or CD is one common type of investment, and you usually can invest in these by simply going to the bank or credit union and looking at your options. Typically, this is a short-term investment that has a fixed expiration date, anywhere from about three months to five years. Generally, these pay a fixed rate of interest, and the advantage is that because you have agreed to leave your money in the CD for the fixed amount of time, the bank pays a higher rate of interest that it would for a typical checking or savings account.
A money market account is another common type of interest-earning vehicle, and it has some advantages over a CD. One of the advantages is that these accounts are kind of like checking accounts and you can make deposits and withdrawals from the account. With a CD, the money stays put until the term expires. Often, a money market account earns more interest than a CD, and the more money you invest, the more interest you earn. However, because the brokerage company is basically taking your money and investing it into money markets, you certainly have a higher risk of loss than with a CD.
They say that it is never too late to plan for retirement, and this is certainly true. But it's also never too early to save up, so if your employee provides a 401 (k) package, be sure to take advantage of this retirement account. Money is deducted from each paycheck, but you can choose the amount deducted and change the amount if you want to save more or need more cash. Generally your boss or employer matches the amount you invest up to a set limit. This might be $1,000 or $40,000, depending on the company. Another option is to look into setting up an IRA, which is an Investment Retirement Account.
While you might be wary of playing the stock market, you can invest in a mutual fund, which is a lower risk way to earn money from stocks and bonds. With a mutual fund, a professional fund manager finds a collection of holdings and then creates the fund and invites people to invest. You buy shares in a mutual fund and earn interest if the fund performs well. Because the investment is diversified or spread among many different holdings, it is less risky than just putting money into one company. There are thousands of mutual funds, such as China fund which invests in a variety of Chinese companies or an energy fund that would invest in many different types of energy-related companies.
Mutual funds pay a variable or changing rate of interest that depends on how well the holdings in the fund are performing, so this is potential for loss. But if the fund is well managed, you typically stand to earn a higher rate of interest than you would with either a CD or a basic savings account. This is especially true in the current economic situation, where banks are offering only very low rates of interest for CDs and interest-bearing savings and checking accounts.
About the Author:
Cleveland Jernigan enjoys blogging about investments. For additional details about dividend mutual funds or to find out more about mutual funds, visit these fund websites today.
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