Acquiring financial knowledge through gathering sound information on investing can mean the difference between creating and losing hundreds of thousands and perhaps even millions of dollars over the 30-40 years of your career. I have observed the value of sound financial planning and spent a career acquiring information on investing. For several years I worked as an investment banker on Wall Street and have studied and gathered useful principles on how to invest. In this capacity I evaluated and structured a variety of financial instruments including bonds, stocks, and options that were sold to public investors. I have created this web site as an online financial guide for every-day, hard-working people. The information in this site is provided as a resource to guide you through the various choices you have to invest your hard earned money.
You are certainly aware that there are numerous investment products and places where you can invest your money. Like many consumer products companies, purveyors of financial products also utilize mass media and advertising to promote their products. However, media and advertising is not objective information on investing and will not guide you how to invest. Like buying a car, refrigerator or DVD player, you need to understand the differences between what the various companies offer and use third-party financial guides and books on investing to properly evaluate investment products. There are also numerous investing guides, books on investing, and online investing resources, including this online financial guide.
A basic understanding of the principles that underlie these products will help you identify what products are best suited for you.
To understand how to invest, we must first establish a few important investment terms. You may have heard of the term "Asset Allocation." An understanding of this term is the first step in taking advantage of this financial guide. Investment decisions are often called asset allocation decisions. In other words, these decisions directly result in how you will allocate your personal investment capital among several classes of assets. The major asset classes used to make asset allocation decisions are typically stocks, bonds, and cash. There are also several investment categories that exist within each of these major classes. Other major asset classes include real estate, derivatives, private equity, precious metals, and foreign currencies. Each asset class has risk associated with it and a corresponding financial return. The major classes are identified below:
Stocks. Companies sell shares of their stock to raise funds for their operations. Of the three major asset classes, stocks have the greatest amount of risk and correspondingly they have higher potential returns than bonds or cash. You can lose your entire investment principal if you invest in stocks unwisely.
Bonds. Companies, governments, municipalities, and government agencies sell bonds to raise funds. Generally, bonds generally have less risk and lower returns than stocks. In some bonds, the return of principal is guaranteed. Bonds are also debt obligations that legally must be paid before funds are made available to stockholders.
Cash. The third major asset category is cash. Cash includes cash-equivalent securities (also called "near cash") such as savings accounts and deposits, CDs, Treasury bills, money market accounts and money market mutual funds. The returns on these investment are low but they are extremely "liquid" (easily accessible) and the safest of the three classes.
