Investment Planning
Individual Stocks
Generally, stocks are divided among various categories. At the top are the stocks issued by large, well-established companies, often called blue chip or large-capitalization (large cap) stocks. Below are stocks issued by smaller companies, often divided by their size or market capitalization into mid-cap and small-cap stocks. Over the long term, stocks have earned higher and more positive returns than any other financial investment. These higher returns help offset the risks of investing in stocks.
The Bond Market
Bonds are essentially loans to a corporation or the government. Bonds are often referred to as income investments because, in return for the use of your money, the bond’s issuer agrees to pay a certain rate of interest at regular intervals for a set period until the bond matures or the principal is otherwise repaid.
Mutual Funds
If you want to invest in the stock market but don’t have a large enough portfolio to achieve the diversity you want through individual stock purchases, mutual funds may provide the solution you are looking for. Mutual funds are a collection of stocks designed to meet a stated investment objective or strategy. For instance, you may be able to choose between a fund that holds small- or mid-sized companies, large blue chip companies, or government bonds. Some funds are designed to provide growth, others to give you income.
Diversification
Diversifying your funds among different types of investments is an important way to minimize your investment risks. It can also play a large role in the return you can expect. In fact, how you allocate your investments among asset classes (stocks, bonds, mutual funds, etc.) may be the most important factor, by a significant margin, in determining portfolio performance. That means making asset allocation choices should be one of your first steps in the investment process.
Risk/Reward
All investments involve a trade-off between risk and return. A certain amount of risk is inevitable if you want your money to grow. The key is determining how much risk you feel comfortable with. Understanding your personal risk tolerance will help you create a plan you can stick with through good times and bad.
Annuities
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