If you are intimidated by investing this post is for you. It is my goal to take away the uncertainty about investing that causes you do not want to start NOW. I am going to go through each investment type and explain it so you could teach it to your 5 year old nephew.
CD (Certificate of Deposit)
This is just a type of glorified savings account. Nobody is scared of a savings account well this is the same thing only you get a better interest rate but you cannot touch the money for a determined period of time (3 months, 6 months, etc.)
Money Market
The other type of glorified savings account. Usually with these accounts you have limited transactions but a similar interest rate to CD's. You should have a minimum rate 4.5% if you don't get that on your current money market you need to switch to www.ingdirect.com. However, I have a Bank of America Money Market that gives me a return of 5.05% so you can get better rates out there, just keep your eyes open for promotions.
Stocks
Easiest to understand. The stock market lists a price. Example: Crazy Joes, Inc. for $35.00 per share. If I want to invest $140 in Crazy Joes I buy 4 shares. As the stock market continues the price will either go up or down. If it goes up to $35.25 you just made $1. If it goes down to $34.75 you just lost $1.
Let me add this: Individual stock picking is extremely difficult. Experts in the field that try this still have no consistency in being sucessful. The key is DIVERSIFICATION. Whenever you hear me talk about investing the word DIVERSIFICATION is going to come up a lot. If you do want to go with individual stocks you better have your money spread accross MINIMUM 20 stocks, I recommend 50 and even then I am not too confident. It takes a lot of time, preperation, and research in order to have confidence in your investment.
Mutual Funds
These are my preferred type of investments. Because they come diversified, and I even like to diversify my diversified mutual funds.
What a mutual fund is: A fund manager picks a bunch of investments (could be a certain type of stock, could be real estate). Let's say Fidelity comes out with a new "aggressive growth stock" mutual fund and they pick Larry Ostertag to be their fund manager. It is now his job to pick a bunch a bunch of aggressive growth stocks and hope they do good. Now on the flipside the money he is investing for is "mutually funded" by lots of people like me and you.
Picture a bowl and you and 10 of your friends all put a certain amount of money in there. That is the pool of money Larry has to work with to make you and your friends money. So the difference b/w mutual funds and stocks is that instead of me trying to guess what stocks will do good. I have a trained, licensed, experience professional picking them for me.
I have heard it is a good idea to diversify your mutual funds something along these lines: 25% growth stock, 25% aggressive growth, 25% growth & income, 25% international. This is a very oversimplified version of diversifying but it is a foundation to build on.
I am going to the Braves game now so please click the contact me button on www.chriskakaras.com if you have any questions, I would love to help!