Beginner Investing OverviewAs a beginner investing for the first time, although an accountant and good with numbers, I knew very little about investing. I embarked on a serious search for information. I read Forbes, Fortune, Kliplinger, Money magazine, The Wall street journal, to name a few. It took me almost a year before feeling comfortable enough to move from saving to investing!Even if you entrust your beginner investing decisions to a professional financial planner or broker, you should have an understanding of what you are buying, some personal finance investing Key Concepts, and how they are going to help you reach your financial goals. If Warren Buffett doesn't invest in what he doesn't understand, it would not hurt to heed his advice and follow suit.What are the basic investment vehicles and how do they work? To begin investing you need to understand: What a stock is: A stock is a small piece of a company. It's used to raise money to make the company function. By buying a stock you become an "owner" and as such will be entitled with all the other owners to a proportional share of profits and losses produced by the company. What a bond is: A bond is a documented note you make to a company or the government in exchange for getting a periodic interest payment at a fixed rate. A bond is usually considered safer than a stock because as a lender you would be repaid before the stockholders, should the company experience any difficulties. Also with bonds the rate of interest you earn will depend on the quality of the company. For instance if you are buying the bonds of a solidly established and profitable company like IBM or the federal Government, you may only get a 4% return, whereas for a company in financial difficulty and an uncertain outcome, they may have to offer a 12% return before you would consider taking the risk. What a Mutual Fund is: A mutual fund lets you pool your money with other people and companies. They hire professional managers who through their knowledge, invest in different companies and a variety of industries they deem appropriate. These professional managers will also constantly monitor the performance of the companies in the funds. Your ownership as well as your share of any earnings or losses is in proportion to your investment. Some key advantages to mutual funds are: Professional Management, Diversification, Marketability, Convenience and Varied Objectives . Broad fund categories include :
What a REIT is: A REIT is short for (Real Estate investment Trust). A REIT is similar to Mutual funds in structure except that the money is put in Real Estate. They are traded just like stocks but the dividends are treated differently for tax purposes. If you don't have the money or desire to become a landlord a REIT can provide a way to diversify your assets and participate in that segment of the market. They have certain other advantages. A beginner investing would avoid double taxation as the REIT must distribute 90% of its annual earnings. They remove the headache of personally managing the real estate investment ( no one is going to call you at 1 am about a leaky faucet). A beginner investor doesn't have to take the big risk of a mortgage to purchase a property and can invest only a fraction of what they would otherwise need. A REIT is also very liquid and can be quickly sold if need be. They provide big cash dividends but if you are in a high tax bracket, they might be better suited for your retirement assets. What's a Portfolio? A portfolio is a collection of assets. If you have stocks, bonds, mutual funds, real estate investments , gold or any other investments, in total they constitute your "portfolio" A beginner's investing strategy may include just one or all of the above. The key is not to make any financial move that would make you uncomfortable. Educating yourself on what's available is key place to start.
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