Getting started on an invest-
ment portfolio can be intimidating
to say the very least. Whether
you're reluctant to trust someone
else with your hard- earned money
or just scared off by an investing
language you fear you might never
fully understand, starting out in the
world of stocks, bonds and markets
is a big, yet oftentimes confusing,
step toward securing your financial
future. With that in mind, here's a
list of basic terms with which to
become acquainted before taking
the investing plunge.
STOCKS
· Stock: When you purchase
stock in a company, you are pur-
chasing ownership in that company
and are a bona fide shareholder.
The more shares you buy, the bigger
your stake in the company becomes.
· Common Stock: Stock pur-
chased that entitles the buyer to
vote at shareholder meetings and
receive dividends declared by the
company.
· Preferred Stock: Stock pur-
chased that does not entitle a share-
holder to any voting rights, but gives
him a higher claim on assets than com-
mon stockholders. For instance, if a
company was to go bankrupt and be
forced to liquefy its assets, a preferred
stockholder would have priority in
staking a claim to those assets.
· Dividend: A percentage of a com-
pany's profits that is distributed to
shareholders. Distributing dividends is
typically indicative of a healthy compa-
ny, and shareholders receive a particu-
lar amount for each share they own.
· P/E Ratio: A P/E Ratio is the
stock's price per share divided by the
stock's earning per share. The value of
the price to earnings ratio shows how
the price of the stock relates to how
well the company is doing with respect
to earnings.
· Bull Market: Chances are, you've
heard this term before. A bull market
refers to when a market is on a consis-
tent upward trend (meaning stocks are
rising) and generally reflects a strong
economy.
· Bear Market: The opposite of a
bull, a bear market is when stock prices
are falling and a recession is looming.
BONDS
· Bond: Unlike stock, purchasing a
bond in a company has nothing to do
with ownership. When you buy a bond,
you are loaning money to a company
(or government), and therefore are a
creditor to that company, but not an
owner. You make money when buying
bonds thanks to agreeing to a predeter-
mined interest rate, the dividends of
which will be paid to you along with
the initial amount of your loan on a
predetermined date.
· Maturity Date: The agreed-upon
date that a bond issuer will pay you
back the amount you lent plus the
interest that has accrued.
· Coupon: The predetermined rate
of interest agreed upon between you
(the bond buyer) and the bond issuer.
· Default: A default happens when
a company fails to repay a bond.
· Bond Rating: A bond rating spec-
ifies a bond issuer's probability of
defaulting based on the issuer's finan-
cial condition and profit potential. The
highest rating available (AAA) signi-
fies a strong investment, while the low-
est (D) indicates the issuer is in default.
· Junk Bond: A bond with a rating
of BB or lower, meaning the risk for
default is very high.
MUTUAL FUNDS
· Mutual Fund: A mutual fund is a
collection of stocks and/or bonds. The
easiest way to look at a mutual fund is
as if it is a company that brings
together people and invests their
money in stocks and/or bonds. The
main objective of a mutual fund is to
minimize risk by spreading out your
investment dollars over a collection
of stocks or bonds, allowing you to
avoid putting all of your eggs into one
basket.
· Liquidity: An investor's right to
ask that his shares in a mutual fund be
turned into cash at any time.
· Equity Funds: Mutual funds that
invest in stocks and whose goal is to
provide long-term capital growth,
particularly for those looking to
secure their financial situation come
retirement.
· Fixed Income Funds: Also
known as income or bond funds, fixed
income funds are mutual funds that
invest in bonds and typically provide
steady income to investors. Those
who invest in these types of funds are
often retirees or conservative
investors.
· Money Market Funds: Money
market funds are for those with a par-
ticular aversion to financial risk.
These funds typically boast short matu-
rities. Similar to bonds, these are gen-
erally IOU's issued by institutions in
order to allow those institutions some
cash flow and the opportunity to escape
short- term debt. While they offer an
extremely low amount of risk, they also
offer very little return.
These are just a few terms that
should help you get your feet wet before
you dive into the investing waters.
While there are several options out
there that offer beginning investors low
risk, all investors, from beginners to
grizzled veterans, would be wise to keep
in mind that all investments come with
a certain element of risk and that,
when it comes to investing, the only
sure thing is that there are no sure
things.
K
C
M
Y
10
Wednesday, January 31, 2007
Secure Your Future
The Citizen. Auburn, New York
The Citizen. Auburn, New York
Secure Your Future
Wednesday, January 31, 2007
3
You're young, just married and
dreaming big. First child. First home.
Young families have much to plan for.
Planning for financial security should
be high on your to-do lists.
And when planning for a financial-
ly secure future, you should begin with
your needs, including:
· You need to be sure
your loved ones will be
taken care of.
· You need to protect
your income.
· You need to save for
your children's education.
· You need to build
wealth for your retirement.
"Three key types of
insurance offer the finan-
cial protection young fami-
lies need," said Mutual of
Omaha Vice President
Andy Hutchison. "Life, dis-
ability and critical illness
insurance can be combined to deliver
comprehensive coverage for whatever
life brings."
Life insurance can be whole, univer-
sal, variable or term. Whole life builds
savings and provides a death benefit.
Universal life pays a death benefit and
builds savings tied to interest rate
changes. Variable life is investment-
oriented, varying in both cost and ben-
efit according to how the policy's
investments perform. Term life, which
is the least expensive life insurance for
the young, has no savings component
and provides protection for a specified
period of time.
Disability insurance is the only kind
of insurance that provides protection
for your income. If you became unable
to work because of sickness or injury,
how would you pay your bills?
Disability insurance provides a bridge
over times of trouble. This insurance
can be designed to cover a significant
portion of your monthly income (gen-
erally 60 percent) and benefits can be
timed to begin according to need.
Disability policies also can continue to
pay benefits during rehabilitation, job
retraining and part-time employment.
Critical illness insurance pays a cash
benefit to a policyholder diagnosed
with one of several covered illnesses,
such as cancer, heart attack or stroke.
There's no waiting period and - unlike
traditional health insurance - a critical
illness policy pays directly to the
insured. It's money you can use any way
you want, right when you need it most.
Mutual of Omaha's Hutchison said
young families should periodically re-
evaluate their insurance protection as
their responsibilities change over time.
"Choose a financially strong insur-
ance company and an insurance sales
professional who is committed to help-
ing you make your dreams come true,"
he advised. "The ultimate value of any
policy depends on the company and
the people behind it."
For more information, visit
www.mutualofomaha.com.
Courtesy of ARA Content
Financial Planning for Young Families: Start Now
Investing for beginners
