Investment Lesson

An investment is an asset that is used to generate a profit through interest or capital appreciation. This is such an important part of your financial plan because as you accumulate wealth you want it to work for you so that it continues to grow. This is when you really want to put the rule of 72 to work for you. If you are not familiar with the rule of 72 refer to the saving plan lesson: Rule of 72 There are many different options available, so you have to decide your own level of experience and your tolerance for risk. Remember the higher the expected return the riskier the investment is likely to be. Some of the investment vehicles are:

• Stocks
• Bonds
• Mutual Funds
• Real Estate
• CD’s
• Derivatives
• Insurance
• 401K
• Stock Options
• Annuities

Common Stock Secrets
Purchasing stock is simply buying an ownership position in the company that you are investing in. It’s important that you know something about the company, the management team and the business philosophy of the company. The more you know about the company and the industry the better because you can make much better investment decisions. Warren Buffett is well known for his ability to pick value stocks. Warren Buffett Books Warren Buffett is a value investor meaning he looks for the future value of the companies. If you are going to be a value investor you will need to do a lot of research to understand the companies. Companies can be researched on the internet, libraries, or by actually calling the company's public relations department. You can learn a lot from the company’s financial statements and their 10K filings. Most publicly traded companies have an investor relations department that you can contact to find out about the company and its strategic plan.

Learn To Purchase Bonds
Bonds are a little safer than stocks. There are several types of bonds, there are Government bonds (Treasury Bills, Treasury Notes, Treasury Bonds), Municipal Bonds, Corporate Bonds and Zero Coupon Bonds.

Government bonds are considered the safest because the debt is backed by the government. They are also called Treasury Bills, Treasury Notes or Treasury Bonds.

Municipal bonds are next in line in terms of risk because they are backed by city government which rarely go bankrupt. One of the benefits of municipal bonds is they are free from federal taxation. Some cities will make them free from local taxes, therefore, they can be completely free from taxation. The return on municipal bonds is usually lower than taxable bonds because after taxes they can produce a very good return.

Corporations issue corporate bonds. The corporate bond is backed by the corporation and as such is riskier than other types of bonds. As you are aware many corporations do actually file bankruptcy which could cause you to loose all of your money.

The Zero Coupon Bond is a bond that doesn't pay a coupon value (make monthly payments). In other words if a $1,000 bond maturing in 10 years is selling for $600 you would pay $600 for the bond that will be worth $1,000 in ten years.

Learn The Secrets of Mutual Funds
Mutual Funds are managed by professionals who follow specific guidelines that determine what type of equities the fund manager can purchase in the mutual funds portfolio. There are many different types of mutual funds to satisfy many different investment styles. Mutual funds are great for people who don't have a lot of experience but understand the importance of letting their money work and grow. You can choose a fund that maintains a portfolio of the type of equities that you want and has a track record you are comfortable with. The other thing that you have to look out for with mutual funds is the fees that they charge for managing the fund. I invest in the Janus 20 Fund because it has low management fees and a great long term track record of growth. Janus Funds....

Find Foreclosures Nationwide Coverage! Use the Nation's #1 Source to Unlock the Data Successful Investors Use!
I have been able to purchase several pieces of property during my career. I feel that real estate is an excellent way to plan for your future and help your money grow. Real estate has had a very good long term record of appreciation and in my opinion is a great way to solidify your portfolio. I think it's a great place to have your money as you get closer to retirement with the hope that when you are ready to retire you will have several properties that are paid off so you can collect the income from the properties. You will also be able to enjoy the appreciation from the rents which will help you keep pace with inflation. One of the problems retired people face is inflation because sometimes their income is fixed but their expenses continue to climb with inflation. With rental property you will be able to raise rents right along with inflation and hopefully get additional appreciation. Certainly there will be peaks and valley's in the market but you still should be able to survive the valleys with rental properties because typically when the market gets soft rents increase because people can't afford to purchase homes. There are many real estate books available. Real estate Books

Learn The Secrets of Certificates of Deposit (CD's)
Certificate of deposits are really savings accounts that tie up your money for a specified time and in turn for that you are paid interest. The longer you allow the bank the use of your money the more willing they are to pay you interest. Typically CD's pay more interest than passbook savings accounts but you don't have access to your money during the life of the CD. Some people will put their money in a CD to earn the additional interest but will borrow against the money if an emergency arises that causes them to need the money. Typically banks have no problem lending you money against your Cd because their money is secured by your CD. I'm personally not a big fan of CD's because I believe there are other savings vehicles that you can get a better return on your money.

Learn The Secrets of Stock Options
My experience with Derivatives is with stock options. I like to use a strategy called covered calls. This strategy is to purchase a stock that you feel will increase to a specific price and then sell someone the option to by the stock from you at a specified price. The best part of this strategy is you collect your money when the person purchases the right to buy the stock from you but you keep the stock and only have to give the stock to the person if they decide to exercise their option. If the stock stays below the specified selling price it is not likely that the person will exercise their option because they could buy the stock on the open market for less. The other benefit to this strategy is the option has a specified time frame. Therefore, they expire so if the person has not exercised their option by expiration you get to keep the money and you can repeat the strategy all over again. Stock Option Books