What Are the Basics of Investing?
The basics of investing include educating yourself on financial terms and investment alternatives, taking more risk to receive more reward and diversifying investments to protect against major losses. Learn how risk and return are directly related in investments with information from a financial planner in this free video on investments.
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Hi there, I'm Cathy Pareto, the founder of Cathy Pareto & Associates, certified financial planner here in Miami, Florida. In this clip we're going to be talking a little bit about the basics of investing. Now my first piece of advice to somebody who has not invested thus far is to first educate yourself about what are the different investment alternatives. Familiarize yourself with the different financial terms. Education is going to be key. The basics of investing are essentially this, you either get paid or you don't get paid very much. You get paid for taking risks through things like stocks, or stock mutual funds, whereas with more conservative investments like money market funds or short term bonds, because you're taking less risk you're actually going to command less return. So one of the basic fundamentals about investing is that risk and return are directly related. The more risk you take, the more return you should expect. The less risk you take, the less return you should expect. And you need to counterbalance that whatever your risk tolerances are. One of the other factors to consider is diversification. You want to spread your investments across as many baskets as you can so that if one company or industry goes belly up or is having a bad cycle, you want to have other areas of the market that are protecting you at the same time. Diversification's key and one of the fundamentals about investing. So that's just a little bit about that and this has been Cathy Pareto in Miami, Florida.