INVESTOR KNOWLEDGE
Very few people stumble into financial security. For most people, the only way to attain financial security is to save and invest over a long period of time.
There are two ways your money can work for you:
1. Interest and dividends. When you invest in a bond or bond mutual fund, someone pays you to use your money for a period of time. If you buy stock in a company that pays “dividends” to shareholders, the company pays you a portion of its earnings on a regular basis. Now your money is making an “income.” 2. Price appreciation. When you invest in stocks or stock mutual funds, you buy something with your money that could increase in value. When you need or want your money back, you sell the investment, potentially for a profit. The reward for taking on investment risk is the potential for greater returns. If you have a financial goal with a long-term horizon, higher-risk assets such as stocks or stock mutual funds may be appropriate. Stable value investments such as cash, FDIC insured CDs or short-term investment grade bonds have lower risk and may be appropriate for short-term financial goals.
BE CAREFUL OF AVERAGES! The following statements are true, but misleading:
Market returns are like the weather in Iowa—sometimes we have above-average days, sometimes we have below-average days! Over time, strong returns offset weak returns and investors’ annualized performance may “average” out. Actual investment returns in any given year may be above or below “average,” but are seldom actually average!
Over the past 70 years, stocks have averaged 10-12% annual returns.
Iowa’s annual average temperature is 50.4˚F. Source: www.agclassroom.org
10
Made with FlippingBook - Online catalogs