Cents and Sensibility

Ready to Start Investing? Learn These Terms

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Want to learn a little about the basics of making money in stocks, bonds, and mutual funds?

It’s not as difficult as you might think, and is an important part of your wealth-building strategy.

Check out these investing terms so you can get acquainted, and then come back next week for more details on how you can get started saving and making money through investments.

Long-Term Stocks and Bonds: Data shows stocks provide the highest return of any assets over the long term, a return of over 10 percent. Bonds are the second best return long term, averaging over 5-percent return.

Short-Term Stocks: Short term, stocks can damage your financial investments. Stocks had the worst one-day drop in history-a drop of 24.4 percent on October 19, 1987. The downhill trends are consistent. In 2009, stocks overall lost a frightening 37 percent.

Risky Investments: Historically, risky investments tend to pay more than safe ones (unless safe ones failed). Investors demand more money for higher risks. For example, stocks is perceived to be riskier than bonds and therefore, stocks tend to return more money than bonds.

Single determining factor: The biggest single factor that determines stock prices are earnings. Stock prices shift drastically based on many variables from interest rates to unexpected announcements, such as poor earnings. Ultimately what matters are earnings.

Inflation: Inflation may be the biggest threat to long term investments. Historically, the market has always rebounded from stock market crashes and have gone on to progress. However; inflation– which in the past has vanquished 3.2% off the value of money– typically gives back what it takes away eventually.

About Dr. Karen Ratliff

Karen Ratliff

Credit: Dr. Karen Ratliff

Dr. Ratliff is a certified life coach and professional educator, assisting many people in accomplishing financial, career, and educational goals.  She is also the author of “Tightening Your Bootstraps: 104 Tips to Kick Your Debt to the Curb Now.” Keep up with her budgetary advice via Twitter @drkarenratliff and her website