Common Financial Terminology & What It Means
Investing for the future is a wise decision for all of us, but many people simply have no idea how to invest or even understand the complexities of different types of investments. It is wise to meet with a financial planner so that you can set up investments and have a source to answer your questions. Here are a few common financial terms beginners should know and what they mean.
One investment option that you can get directly from your credit union or your bank is a Certificate of Deposit. These are commonly called CDs and they are a short-term investment. They generally pay a fixed rate of interest, although occasionally the rate of interest varies during the time in which your money is held in the CD. You agree to invest the money for a set period of time, which could be as little as a few months or as long as a few years. There are usually penalties for early withdrawals, so make sure you ask about these penalties.
A money market account is another common type of interest-earning vehicle, and it has some advantages over a CD. One of the advantages is that these accounts are kind of like checking accounts and you can make deposits and withdrawals from the account. With a CD, the money stays put until the term expires. Often, a money market account earns more interest than a CD, and the more money you invest, the more interest you earn. However, because the brokerage company is basically taking your money and investing it into money markets, you certainly have a higher risk of loss than with a CD.
If you haven't set up a retirement account, it is certainly wise to do this as soon as you possibly can. If your employer offers a 401 (k) plan, take advantage of it, especially since your employer will probably match a good amount of your investment, and that's really just free money for you (after taxes, that is). Investment Retirement Accounts are another option, and there are many different types of IRAs to consider. You can invest in both a 401 (k) and an IRA account, which provides you with two investment vehicles.
While you might be wary of playing the stock market, you can invest in a mutual fund, which is a lower risk way to earn money from stocks and bonds. With a mutual fund, a professional fund manager finds a collection of holdings and then creates the fund and invites people to invest. You buy shares in a mutual fund and earn interest if the fund performs well. Because the investment is diversified or spread among many different holdings, it is less risky than just putting money into one company. There are thousands of mutual funds, such as China fund which invests in a variety of Chinese companies or an energy fund that would invest in many different types of energy-related companies.
You are certainly not guaranteed a set interest rate of return from a mutual fund, and there is risk of losing money. Still, this is fairly low risk and generally earns much more in interest than any CD, savings account or interest-bearing checking account from any bank or credit union. These days, interest rates are at historically low rates, and that is great if you are buying a house, but not if you want to earn interest. So a mutual fund offers you a way to earn more with fairly low risk.
One investment option that you can get directly from your credit union or your bank is a Certificate of Deposit. These are commonly called CDs and they are a short-term investment. They generally pay a fixed rate of interest, although occasionally the rate of interest varies during the time in which your money is held in the CD. You agree to invest the money for a set period of time, which could be as little as a few months or as long as a few years. There are usually penalties for early withdrawals, so make sure you ask about these penalties.
A money market account is another common type of interest-earning vehicle, and it has some advantages over a CD. One of the advantages is that these accounts are kind of like checking accounts and you can make deposits and withdrawals from the account. With a CD, the money stays put until the term expires. Often, a money market account earns more interest than a CD, and the more money you invest, the more interest you earn. However, because the brokerage company is basically taking your money and investing it into money markets, you certainly have a higher risk of loss than with a CD.
If you haven't set up a retirement account, it is certainly wise to do this as soon as you possibly can. If your employer offers a 401 (k) plan, take advantage of it, especially since your employer will probably match a good amount of your investment, and that's really just free money for you (after taxes, that is). Investment Retirement Accounts are another option, and there are many different types of IRAs to consider. You can invest in both a 401 (k) and an IRA account, which provides you with two investment vehicles.
While you might be wary of playing the stock market, you can invest in a mutual fund, which is a lower risk way to earn money from stocks and bonds. With a mutual fund, a professional fund manager finds a collection of holdings and then creates the fund and invites people to invest. You buy shares in a mutual fund and earn interest if the fund performs well. Because the investment is diversified or spread among many different holdings, it is less risky than just putting money into one company. There are thousands of mutual funds, such as China fund which invests in a variety of Chinese companies or an energy fund that would invest in many different types of energy-related companies.
You are certainly not guaranteed a set interest rate of return from a mutual fund, and there is risk of losing money. Still, this is fairly low risk and generally earns much more in interest than any CD, savings account or interest-bearing checking account from any bank or credit union. These days, interest rates are at historically low rates, and that is great if you are buying a house, but not if you want to earn interest. So a mutual fund offers you a way to earn more with fairly low risk.
About the Author:
Cleveland Jernigan likes writing about investments. For further information about dividend mutual funds or to know more about mutual funds, visit these fund sites today.
