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Investment Basics

Types Of Investments

Basically there are five different types of investments:
Real Estate: If you own your home, you are an investor. In fact, your home is probably the biggest single investment you'll ever make. Historically, real estate always appreciates. How fast depends on the local market. But when you sell your home, you can usually expect to make a profit.

Bonds: Bonds are debt obligations issued by corporations and governments. They are for a fixed sum and pay interest. They have a maturity date, the date when the issuer must pay back the loan. Bonds carry a burden of risk of default and are rated for their safety by two organizations: Standard & Poors and Moody. S&P rates bonds from AAA to D, with AAA being the safest. Moody rates bonds from Aaa to C, with Aaa being the safest.

Government bonds include Treasury Bills, T-Notes and Treasury Bonds, obligations issued by federal government agencies such as Fannie Maes, Ginnie Maes and Sallie Maes, and savings bonds. In addition, state and local municipalities issue tax-free bonds. Corporate bonds are issued by businesses. There are also bond mutual funds.

When you buy a stock, you buy a portion of a corporation. A business, when it incorporates, authorizes a certain number of shares of the corporation. Each share represents an equal portion of ownership in the corporation. Shares of brand new corporations have a par value- the value printed on the face of the stock certificate- but that number quickly becomes irrelevant. What is relevant is how much investors are willing to pay for the share. That is its selling price and represents the market value of the share. In addition, a share has a book value. The book value is the value of the assets of the corporation, should the corporation be dissolved and the assets sold off.

Futures, Options And Commodities:These are all highly risky investments in which you guess or speculate at the future prices. They are not for the average investor.

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