Choosing Where to Invest
By: Source: AARP.org Date Posted: 2005-03-20 12:08:24
There's no shortage of places to invest your money. Just check the listing of stocks that is featured each day in the financial pages of your local newspaper. You'll quickly be overwhelmed at the possibilities. The trick, of course, is finding the investment that is right for you. Knowing some broad investment categories can help you narrow your choice.
Types of Investments
- Money Market Funds are mutual funds that put money in low-risk, short-term investments that come due in 90 days or less.
- The U.S. Treasury issues three types of federally insured securities to pay for government activities. Treasury Bills mature in one year or less. Treasury Notes mature in 2 to 10 years.
- Bonds are loans that investors make to companies or governments. The loans are repaid in a certain number of years. During the life of the loan, investors receive regular interest payments, usually twice a year. Corporate bonds often pay a higher interest rate than municipal bonds, but can be riskier than those backed by a government. Municipal bond interest is free from federal income tax and could be free from state taxes if you live in the state where the bond is issued.
- Stocks are shares of ownership that a company sells to individuals in order to raise the money it needs to conduct business. Owning stock in a company means that your shares will be worth more if the company does well and less if the company does poorly. Stock prices often go up and down. Over the long term, the stock market has generally provided higher returns than many other types of investments. However, many individual stocks have lost money over time.
- Mutual Funds are companies that pool your money with the money of other investors and then invest that money on your behalf. The risk level of a mutual fund will depend on the individual stocks and/or bonds in which the mutual fund invests. For more information, see Investing in Mutual Funds.
Investing with Clubs
An investing club is a group of people who agree to pool their money to invest in stocks, bonds, and mutual funds. Nationally, there are approximately 70,000 investing clubs that account for more than $350 billion in investments.
Each member of an investing club pays monthly dues. The club uses this money to make investments. Members take part in researching and recommending where a club should invest its funds. They also share the job of tracking the performance of the club's investments.
Think carefully before joining an investing club. Make sure that the other members of the club have a risk tolerance that is similar to yours. If club members can't agree on some basic investing rules, you may be in for some heated arguments down the road. Check also to see how state laws protect your interests as an investor and club member. And, finally, make sure fellow club members have the necessary expertise to research and select investments.
For More Information
U.S. Treasury Department
Treasury Direct, a U.S. Treasury Department Web site, can provide you with information about T-bills, bonds, and notes.
URL: http://www.treasurydirect.gov/indiv/myaccount/myaccount_legacytd.htm
The Basics of Treasury Securities answers common questions about buying U.S. Treasury securities.
URL: http://www.treasurydirect.gov/instit/research/faqs/faqs_basics.htm
Frequently Asked Questions about T-Bills, Notes, and Bonds answers your questions about buying and selling Treasury Securities.
URL: http://www.treasurydirect.gov/instit/research/faqs/faqs_basics.htm
Investing for Success
Investing for Success is a nonprofit investor education program that sponsors free personal finance workshops across the country for middle class African Americans. Those who cannot attend a workshop can view financial materials online.
URL: http://www.ici.org/i4s/index.html
One article in the "Investing for Success" series discusses diversification. Topics include determining your investment mix and maintaining a diversified portfolio.
URL: http://www.ici.org/i4s/index.html
National Association of Investors Corporation
The National Association of Investors Corporation provides resources and information about investing clubs. Among the offerings:
What is an Investment Club?
URL: http://www.better-investing.org
Suggested Steps for Starting an Investment Club
URL: http://www.better-investing.org
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