Guest Author - Rhonda Cliett

Terminology such as brokers, stocks, bonds, alternative investments and mutual funds can leave us paralyzed to the point that we simply leave our money in an old-fashioned savings account rather than try to make sense of investment options. The good news is that investing really is not that difficult. The first step towards moving beyond the basic savings account is to understand investment terminology.

Brokers – Brokers are basically the sales people for brokerage firms. For a commission, they lead clients toward investments and trade stocks and bonds. A trusted broker who provides advice and assistance may well be worth their commission fee. The key, of course, is to find someone that you trust. Keep in mind, however, that you can purchase stock without a broker.

Stock – A share of stock represents a small ownership in a company. The important thing to remember about purchasing stock is that it involves risk. Over a certain time period the market will most likely decline and the value of your stock will be reduced. Generally, this is a short-term change and over the long-term the value of your stock will rise. As a result, you should only invest money that you will not need for 3-5 years. Stock prices are not guaranteed, so if you cannot handle the risk, do not purchase stock.

Mutual Funds – A mutual fund is operated by an investment company which purchases a combination of investments including stocks, bonds, commodities, money market securities, or options. When you purchase a mutual fund you are combining your money with the money of other investors to purchase a variety of investments. A mutual fund provides diversification for your portfolio. You will pay fees in order to purchase mutual funds so you should be certain that you fully understand all of the fees prior to making a decision.

Bond – A bond is similar to a loan. The government or a company need money in order to operate so they issue bonds. The purchaser of the bond is promised a certain interest rate. Not all bonds are equal. Some bonds are riskier and some bonds are tax-free.

Securities – Just another name for stocks or bonds. A security is an asset that can be traded.

Investing in something other than a savings account can be overwhelming to the beginner investor. However, once you gain a basic knowledge regarding investments you will be well on your way to becoming an educated investor.