Financial Corner: SIFE

U-News Staff

Investing 101

In finance, investment is defined as putting money into something to receive a higher return. When investing money, it is careful to measure risk versus reward.

When an investment has higher risk, its return possibilities are typically greater, but the return is less certain.

There are several things in which people can invest, such as real estate, stocks, bonds and CDs. Everyone is recommended to seek professional financial advising because there are laws, conditions and other provisions in investments.

Stocks are one of the most popular investment options in today’s economy. Each stock is a tiny piece of transferrable ownership of a particular company, which means the return success of the stock is directly related to the success of the company.

Big companies like IBM, Google, Microsoft and Apple offer more secure earnings and future growth, but the stock values are generally more expensive.

Stocks in these big companies are low risk compared to stocks in the biotech, pharmaceutical or computer software/hardware industry.

Mutual funds are another investment option. Mutual fund is created from a mixed and diversified pool of stocks. Fund managers make decisions on the fund based on its investment objectives.

The fund manager then continues to buy and sell stocks and securities according to the style dictated by the fund’s prospectus, which includes investment strategies, investment objectives, distribution policy, fees, etc.

Mutual funds are more secure than buying a single company stock because of their diversified pool of stocks and bonds.

A certificate of deposit, or CD, is more like a regular savings account at any bank, but CDs have specific terms of maturity with a fixed interest rate.

An investor has to wait until maturity to receive the maximum capital and interest on a CD.

Withdrawing before maturity usually brings steep penalties.

U.S. savings bonds are one of the safest investments because they are guaranteed by the federal government.

Most can take up to 30 years to reach maturity, so if an investor waits until the bond reaches its highest value, savings bonds are not investments where investors can receive quick cash.

Savings bonds also do not lose interest even if the economy changes because they are backed by the government (FDIC). Since savings bonds are one of the safest investments, it also means the return isn’t as high.

One of the biggest benefits, however, is that bonds are free from local and state income tax.

These investments have varying investment times. Longer investment time provides for compounding of returns, providing a bigger return.

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