February 17, 2007, 11:02 am

Introduction to Investments

by: admin    Category: Investment, Market and Risk
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This is the first of a few articles that will present you with the basics of investments, specifically in financial instruments (compared to investments in real estate, art or other types that we will look over in the future). Why invest your money? There are so many reasons but the obvious one is that investing money now will make you a lot richer in the future. Because of compounding, any amount of money you put aside today will be worth a lot more in the future, the exact amount depending on how long you invest and how well you do it.You will often see graphics that display how important investing early is and explaining that with an 8% return on investment (ROI) for example, you will end up with an X amount of money. Great, but what now? How do I actually make it to getting 8%. The answer is far from obvious and there are probably as many answers as there are people you will ask the question to. Mostly, the various types of investments are each suited to different people depending on the following factors:

-Risk tolerance
-Your knowledge and interest in finance (and how much time you want/can spend)
-Your fiscal situation
-Your needs in terms of liquidity mostly

So in the following weeks, we will work on establishing an investor profile for you depending on how your situation applies to the fa

ctors we just saw and we will then move to explain a few strategies you could use no matter if these investments are for your retirement or any other purpose. Many of you surely use financial advisors and that is perfectly fine. But you should still know the basics of what is happening with your money.

A few of the types of investments will cover that you may have heard about are:

  1. Equity stock (growth or dividend stocks)
  2. Bonds (government or corporate)
  3. Mutual funds
  4. ETF’s
  5. Derivative products
  6. Real estate
  7. Commodities
  8. Others

We will also discuss subjects such as diversification and asset allocations. If you ask your neighbour about investments, chances are he will have a tip about some stock. It might be a good recommendation, but there is no way you should invest in that stock unless you have a clear plan and know how much you are willing to put into the trade.

This plan will also help you plan your retirement, know how much of your investments could be invested in more risky assets, etc.

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