Investing 101
Typically, I encourage anyone who is new to investing to either speak to at least 2 financial managers and/or do a lot research on the internet.
A person should speak to several financial planners to hear different options and make sure they are comfortable with the financial planner that is chosen.
Today, the internet has made it possible to do massive amounts of research easily on financial topics. Whether it be about a particular company or about an investment topic, there is plenty of information available.
That said, let’s discuss a few investment points. Over the long term, stocks have historically outperformed all other investments. From 1926 to 2008, the S&P 500 returned an average annual 9.6 percent gain. The second best performing asset class is bonds. Long-term U.S. Treasury notes returned, on average, 5.9 percent over the same period.
However, the recent months have taught us that stocks can go down very quickly. The biggest single determiner of stock prices is earnings. Over the short term, stock prices fluctuate based on factors ranging from interest rates to investor sentiment to the weather - as we have seen in recent months. But over the long term, what matters are earnings and this is why many companies choose layoffs during economic slumps, to cut expenses and boost earnings.
Bonds tend to be much less volatile than stocks. In 1994, the worst year for bonds in recent history, intermediate-term Treasury securities fell just 1.8 percent, and the following year they bounced back 14.4 percent. If you look at general stock market returns in 2008, they were much lower than 1.8 percent.
U.S. Treasury bonds (or U.S. Treasury bills) are as close to a zero risk investment as an investor can get. The conventional wisdom is that the U.S. government is unlikely ever to default on its bonds - partly because the American economy has historically been fairly strong and partly because the government can always print more money to pay them off if need be. If the government were to fail, here in the United States, we would have bigger issues to worry about than our investments in treasury bonds.
The general school of thought is that if you are younger then your investment strategy should be more aggressive (risky) because you have a lot of earning years in front of you to make money. As you age, you should consider moving a portions of your money to less risky investments, such as bonds, annuities, U.S. treasury bonds. If anything, 2008 and 2009 has taught us this.
Typically, I encourage anyone who is new to investing to either speak to at least 2 financial managers and/or do a lot research on the internet.
A person should speak to several financial planners to hear different options and make sure they are comfortable with the financial planner that is chosen.
Today, the internet has made it possible to do massive amounts of research easily on financial topics. Whether it be about a particular company or about an investment topic, there is plenty of information available.
That said, let’s discuss a few investment points. Over the long term, stocks have historically outperformed all other investments. From 1926 to 2008, the S&P 500 returned an average annual 9.6 percent gain. The second best performing asset class is bonds. Long-term U.S. Treasury notes returned, on average, 5.9 percent over the same period.
However, the recent months have taught us that stocks can go down very quickly. The biggest single determiner of stock prices is earnings. Over the short term, stock prices fluctuate based on factors ranging from interest rates to investor sentiment to the weather - as we have seen in recent months. But over the long term, what matters are earnings and this is why many companies choose layoffs during economic slumps, to cut expenses and boost earnings.
Bonds tend to be much less volatile than stocks. In 1994, the worst year for bonds in recent history, intermediate-term Treasury securities fell just 1.8 percent, and the following year they bounced back 14.4 percent. If you look at general stock market returns in 2008, they were much lower than 1.8 percent.
U.S. Treasury bonds (or U.S. Treasury bills) are as close to a zero risk investment as an investor can get. The conventional wisdom is that the U.S. government is unlikely ever to default on its bonds - partly because the American economy has historically been fairly strong and partly because the government can always print more money to pay them off if need be. If the government were to fail, here in the United States, we would have bigger issues to worry about than our investments in treasury bonds.
The general school of thought is that if you are younger then your investment strategy should be more aggressive (risky) because you have a lot of earning years in front of you to make money. As you age, you should consider moving a portions of your money to less risky investments, such as bonds, annuities, U.S. treasury bonds. If anything, 2008 and 2009 has taught us this.