Seven Investment Terms Everyone Should Know

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Author: Tim Gorman

Article source: http://www.suikast.net/. Used with author's permission.

For those who have never given their financial future a second thought, the term "Financial Planning" could be a scary one. Investments can be a smart way to invest money for your future, but it can be confusing for those who have no experience in the financial business. Before you consult a financial planner it is wise to become familiar with some of the terminology that you are likely to hear from him or her.

* Mutual Fund-An investment made with money that is collected by individuals with an investment goal in mind. The mutual fund is handled primarily buy a person known as the fund manager. Mutual funds are easy and cost efficient, since you are not responsible for making the decision as to where to invest the money.

* Asset Allocation Fund-A mutual fund that incorporates several types of investments such as stocks, bonds, real estate, and foreign stocks. These are typically for the small investors who want to invest in a variety of funds in order to maintain a constant return.

* Risk-Return Trade-Off-This is the amount of money that you can stand to lose versus the amount of money you are willing to invest. Investments that are low-risk often have low payoffs, while investments that are high risk usually have higher payoffs. When investing money you must determine the amount of money you can lose before determining how much money you will invest and where you will invest it.

* Compounding-Money made from an investment that will then be reinvested into the same or another investment to generate its own earnings.

* Bonds-Money that is loaned to a company or the government at a specified interest rate. The company will usually give some kind of document that states the amount loaned and the agreed upon interest rate and the total amount that will be repaid at a specific time or "maturity date".

* Stocks-Pieces of a company that are for sale. One would buy stocks from a company at a given price in hopes that the company would gain a significant amount of money and that they would be able to sell the stocks at a higher price.

* Money Market Funds-Money invested in debt by a mutual fund. The goal is to obtain money from interest to the debt. The benefit of the Money Market Account is that they offer very low investments of less than $1.00.