Investment 101: Understanding investment vehicles

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Not all investment vehicles are created equal or work for one’s financial goals. Some provide steady income, but yield small returns on investments. Others may provide significant returns, but require a long-term investment commitment.

For investors, there is a wide variety of investment vehicles to choose from. Of the most popular are mutual funds, traditional IRAs, savings bonds or bond funds, Roth IRAs, and stocks.

Mutual funds

Mutual funds are invested in different securities which may include bonds, stocks, and/or money market securities. It is important to note that mutual funds differ from an investment trust, which issues shares in the company itself.

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Traditional IRA

This is a personal savings plan that gives tax advantages for savings retirement. Investments may include a variety of securities. Contributions in traditional IRA may be tax-deductible. However, earnings are not taxed until they are distributed. Risk levels under this type of asset vary according to the holdings in IRA.

Roth IRA

Roth IRA is another type of personal savings plan wherein the earnings that remained in the account are not taxed. Risks associated with this type of investment are relatively low.

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Bonds and bonds funds

These are also known as fixed-income securities because the income paid is fixed once the bond is sold. Bonds and bonds funds are usually invested in corporate or government debt obligations and are usually low-risk.

Stocks

Stocks represent a share of the company. As the company’s value rises or falls, so does the value of the stocks.

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A note to investors: Questions to ask before investing

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Investing is a risky business. It is important that investors conduct a thorough evaluation of the background of the business they are interested in before handing over their hard-earned money.

The Securities and Exchange Commission offers some tips on what investors should do before jumping in with both feet. Below are questions any investor must ask to avoid future financial troubles:

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 Questions about the product

1. Is this investment product registered with the Securities and Exchange Commission (SEC) and with my state securities agency?
2. How will this investment make money? Through dividends, interests, or capital gains?
3. What is the total sum to purchase, maintain, and sell this investment?
4. How liquid is this investment? How easy will it be to sell if I needed my money?
5. What are the specific risks associated with this investment?
6. Where can I get information about this investment?

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Questions about the progress of investment

1. How frequently do I get statements?
2. Is the return of investments meeting my expectations and goals? Is this investment performing as I was led to believe?
3. How much money will I get if I sell my investment today? 

But what if the questions were answered satisfactorily yet a problem still arises? In any endeavor, especially in finance, the occurrence of unforeseen problems is inevitable. When faced with financial challenges, there are several steps an investor can take: talking to financial professionals and their supervisors, writing to the compliance department of the firm’s headquarters, and asking for help from the SEC.

This Alex von Furstenberg blog offers more tips on how to invest wisely.

Smart investing 101: Understanding value-based investing

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Everybody loves value, especially people who invest in the stock market. However, it is important to remember that value stocks are not junk stocks. Just because a stock is cheap does not mean that it has value. Value-based investing is “not shopping the bargain bin for seconds and discontinued models. It is not about buying anything less than $3 per share.”


Investment companies focused on value investing, like Noah Hamman’s AdvisorShares Investments, LLC, and Alex von Furstenberg’s Ranger Global Advisors, LLC, define value-based investing as finding stocks that are not correctly priced or valued in the market and buying them because they are or will be worth more when the market corrects itself. Investors who buy these kinds of stocks are called value investors, the most notable one being Warren Buffett, the “Oracle of Omaha.”

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For value investors, the fundamentals of a business (earnings growth, cash flow, dividends, and book value), are more important than the other factors that influence the company’s stock price. These fundamentals give value stocks their value. When the stock market prices a company’s stocks lower than their obvious value, value investors see it as a perfect time to buy those stocks. Value investors are also the ones most likely to invest long-term on the stocks of a company that has good fundamentals.

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Value-based investing is not easy money, but a lot of people have already made fortunes out of this kind of investing, especially after careful research and planning.

For advice on value-based investing and investing in the stock market, visit this website.