Investing for the Average Joe

If, like myself, you're not a maven in investing, but want to know more, thankfully Nancy Evans wrote this informative post to help teach us more about investing money.

Where and how you invest your money is a decision that is critical. That being said, being able to fully understand the different types of investments you can make might just require you to take a crash course in just the terminology. Here is a quick look at a few of the terms and investment types that might help you gain a bit of an understanding of the process of investing while allowing you to make better, more informed decisions.

A cryptocurrency is a digital type of asset that has been developed and designed in such a way that they function as a type of exchange (just as with money) online. Cryptocurrency is managed and maintained by the use of cryptography, and this acts as a measure of security. You can invest in this asset by either purchasing it outright or by mining for it with a company such as Genesis Mining. There are quite a few types of this currency, but Bitcoin is the most well – known. There are also Litecoin, Ripple, MintChip, and Ethereum.

Mutual Funds
Mutual funds are a type pooled investment that are managed by someone called an investment manager and this allows the investors to have their money be invested in a few different types of investment vehicles such as bonds, stocks, and more. Mutual funds get valued at the end of each day of trading and if there are any transactions to be made, such as buying or selling, this is also done after the close of the market day.

Shares (Stocks)
Another type of investment is shares, or stocks. When someone buys shares of a company, those shares represent a part ownership of that company and they give the shareholder the chance to take part in the success of the company through the price of the stock increasing as well as any dividends that the company declares. In other words, to hold shares in a company means that the shareholder has a claim on the assets of that company.

Bonds are actually what is known as a debt instrument. Basically, a bond is when someone loans money to an agency or company in exchange for interest payments as well as the face value of the bond when it matures. Bonds can be issued by the federal government, corporations, and many levels of the government including municipalities and states. These bonds can also be bought on the secondary market as you see with stocks. The value of the bond might fall or rise depending on quite a few factors, the most critical of which is the rates of interest.

An annuity is a type of contract that is between an insurance company and the investor. This contract involves the insurance company making payments to the investor. These payments can either begin immediately – as seen with immediate annuities – or they can begin at a predetermined time in the future – as seen with deferred annuities. This is a relatively low risk type of investment, which also means that the return isn’t as good as investment vehicles with more risk.

Cash Equivalent
Investment that are considered to be cash equivalent are meant to protect the original investment while allowing you to have access to the funds you invested. Examples of cash equivalent investments include CDs, money market accounts, and savings accounts. This type of investment tends to give the investor a stable rate of return. That said, these types of investments are not really built to be part of a long term investment goal, like for retirement. Once taxes have been paid on them, the actual rate of return is very low and it doesn’t tend to keep up with the rate of inflation.

Commodity Futures
This type of investment is a contract that agrees to sell or buy a set amount of a specific commodity at a specific price on a predetermined date in the futured. Types of commodities might be things like currencies, financial instruments, animal products, grains, oil, and metals. With very few exceptions, trading in commodities futures has to be done right on the floor of the commodity exchange, and has to be done before the market closes for the day.

See my disclaimer.

Penniless Parenting

Mommy, wife, writer, baker, chef, crafter, sewer, teacher, babysitter, cleaning lady, penny pincher, frugal gal

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