Building an Investing Strategy Personal Finance

Transcript:Building an Investing Strategy Personal Finance:
Building an Investing Strategy Personal Finance Lab Investing Vocab Investing Strategy A plan for how to save money to help it grow. An investment strategy includes more than just stocks! Liquidity How easily it can be converted into cash for other use Risk The chance of the investment to lose value Potential Returns How fast your investment can grow Security Types Cash and Bank Deposits Liquidity: Very High Risk: Low Potential Growth: Zero or Negative Certificates of Deposit Liquidity: Low Risk: Low Potential Growth: Low Stocks Liquidity: High Risk: Medium Potential Growth: High Cash, believe it or not, is an investment in and of itself. Cash, and bank deposits you can withdraw right away, are the most liquid assets, since liquidity is basically how quickly you can convert any investment into cash. A Certificate of Deposit is like a savings account with a locked-in interest rate, but you cannot withdraw the cash for a certain period of time. “Stocks” is usually what comes to mind when thinking about investments. As far as an investment strategy is concerned, mutual funds and ETFs which hold stocks are all the same thing – buying a piece of one or many companies in exchange for a share of their profits. Security Types Bonds Liquidity: Medium Risk: Low Potential Growth: Medium Real Estate Liquidity: Low Risk: Medium Potential Growth: Medium Precious Metals Liquidity: High Risk: Medium Potential Growth: Medium Derivatives Liquidity: Medium Risk: High Potential Growth: High Bonds come in three “Flavors” – Corporate Bonds, Treasury Bonds, and other Government Bonds. Unlike stocks, a bond is a loan that you make to a company or government, and they need to pay it back plus interest. Real Estate includes land and buildings. You can buy and sell different real estate as an investment. This includes buying Gold and Silver. Many investors try to buy gold and other precious metals as an investment (and to protect against inflation). However, this often backfires. Derivatives that normal investors can purchase include stock options and futures. Being a “Derivative” means that it “derives” its value from something else. Tips and Tricks Don’t Keep All Your Eggs in One Basket It is important to have a diverse investment strategy. This means that you are investing in different types of securities. This is important because it then you will have a better chance at making a return and profit from your investment.