The Language Of Investment For Women
No matter what her stage in life, a woman should always be aware that, while remaining physically fit is important at any age, her financial fitness is equally important. Both health and wealth need early and constant attention.
There is an old quote from an unknown author that “it’s not about the money. It’s about the life I want to live”, and if you’re a woman at a crossroads in life — facing or contemplating the reality of divorce or separation — now, more than ever, is the time to have your ducks in a row, when it comes on to your financial well-being.
The top motivator for women staying in bad relationships for way too long, studies have shown, is fear. And fear regarding their financial security ranks high among women in long-term domestic situations. How can their money work for them in this new normal, living from one financial emergency to the next (and these days, doesn’t it seem like an emergency pops up every month)?
The answer, of course, lies in wise investment. But, if you are a woman who was always content to allow your spouse or even a parent to make all the big money decisions, the concept of investment may seem as daunting as that of learning a new language. This is because the language of investment, especially if you didn’t come from a household that taught you that language in your youth, is in fact new. And it can be extremely intimidating. But you can do it, and without consulting Rosetta Stone.
Here are 10 basic terms to become familiar with as you embark on this exciting journey to achieving your investment goals.
1. Diversified portfolio: A collection of different investments (cash, stocks, bonds, commodities, real estate, for example) that combined will reduce an investor’s exposure to risk of loss of their capital that would sooner occur if all their capital was put into only one investment.
2. Risk tolerance: An investor’s psychological and actual ability to withstand the possibility of loss incurred on an investment. Depending on your tolerance, or risk appetite as the case may be, you can determine the kind of investment vehicle best suited to you, whether stable and conservative or risky and ambitiously high-stakes.
3. Asset class: A grouping of investments with similar characteristics that are subject to the same laws and regulations. Equities (stocks), fixed Income (bonds), cash and cash equivalents, real estate, commodities, futures, and other financial derivatives are examples.
4. Stocks: Buying stock in a company means purchasing fractional shares of ownership in the company, which pays dividends each year relative to its stock price. Typically, the better the company performs, the more the value of the stock over time.
5. Bonds: These are essentially loans to a company or the Government that, upon maturity, you can cash in and collect interest on.
6. Mutual funds: In the simplest terms, these funds come from a pool of investors like you and are invested in things like stocks and bonds by money managers who make the decisions to buy or sell, therefore spreading any risk among the group of investors.
7. ETFs: An exchange-traded fund has a lot in common with a mutual fund, as both consist of a mix of many different assets and represent a common way for investors to diversify. ETFs however can be traded like stocks, while mutual funds can only be purchased at the end of each trading day based on a calculated price. Mutual funds are actively managed by a fund manager who makes decisions about how to allocate assets in the fund. ETFs are managed similarly.
8. IPOs: Initial public offerings are stock market launches from companies that have decided to “go public”, or in other words, sell shares of the company for the first time, in order to raise equity capital to become bigger. These IPOs are underwritten by investment banks which arrange for the shares to be sold on the stock market. (An APO, please note, is an additional public offering already listed on the stock exchange but which decides to offer additional shares to the public for purchase.)
9. REITs: Real estate investment trusts afford the investor interested in acquiring residential or commercial property for rental income purposes but who doesn’t quite have enough capital to invest indirectly into property or mortgages. REITs can take the form of mutual funds or stocks trading on the stock exchange.
10. Prospectus: A legal document that gives detailed information about stocks, bonds, mutual funds, and just about anything you plan to invest in. It can be obtained online or from your financial advisor.
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