What Next? by Elana Lyn Gross

Author:Elana Lyn Gross
Language: eng
Format: epub
Publisher: Adams Media
Published: 2020-04-14T00:00:00+00:00

Can’t choose between value and growth? You don’t have to—you can buy both.

Bonds

Bonds are loans made by a lot of people to a company or government entity. They’re a fixed-income investment, meaning that they pay you back the same amount (plus interest) on a set schedule. This makes them less risky and more predictable than other types of investments, unless you invest in a company that defaults.

Unlike when you invest in stocks, fixed-rate bond payments don’t change based on the market. The interest rate is fixed and you will get all of your principal (the amount you paid for the bond) unless the company defaults. You can make a profit if you sell your bond at a higher price than your purchase price. Although bonds are often less risky than stocks, they generally offer less of a return. If you buy a bond in a company that has a strong balance sheet, you are going to receive a lower interest rate but more safety than if you buy a bond in a company that doesn’t have as strong a balance sheet.

Mutual Funds

When you join a mutual fund, you and a group of investors own everything in the fund, and a professional fund manager invests the collective assets. You all share the gains or losses proportionally to the amount of money you invested in the fund. Mutual funds are made up of different stocks, bonds, or a combination of both.

Mutual funds are designed and managed by a team of portfolio managers who do this for a living—meaning you don’t have to spend a lot of time researching different stocks and bonds; they do it for you. Plus, the funds are diversified into a number of different investment categories to maximize returns and minimize risk.

Just know that if some of the investors in the mutual fund decide to sell, you will all share the “capital gains” (total money earned) and have to pay taxes on it, even if you didn’t independently decide to sell.

Exchange-Traded Funds (ETFs)

Most ETFs are index ETFs, which are considered to be passive investments. The fees are lower because the person who designs the fund doesn’t have to do any research. Many ETFs are designed to track a specific market index; a popular one tracks the S&P 500 Index, which measures the stock performance of 500 large US companies. ETFs are similar to mutual funds, but there are a few key differences:

Like mutual funds, ETFs contain a collection of stocks or bonds, but they aren’t designed by a fund manager like mutual funds.

With mutual funds, you can only buy and sell at the end of the day, but ETFs trade on the stock exchange, so you can buy and sell throughout the day (so they are considered to have greater liquidity).

Index fund ETFs are less expensive than actively managed mutual funds and much less expensive than hiring your own portfolio manager, and they still provide you with a diversified portfolio.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.