Slow economy means time to invest
A slowing economy is a signal for investment-savvy people to start buying.
“Buy low, and sell high,” said Jared Nichols, a financial consultant who helps people find a good starting place for their investments.
The number of people who buy while stocks are on the rise and sell when prices drop for a loss is surprising, he said.
“Generally, investing isn’t a good idea for students because their needs are short-term,” he said.
However, if a student was to receive a windfall of money, such as an inheritance, now would be a good time to put the money away for a rainy day.
“Students should invest money they know they won’t need,” Nichols said.
A primary concern for those who invest is the risk involved. Securities investments are not insured by the Federal Depositors Insurance Group (FDIC). The FDIC is the government agency that guarantees bank clients’ money, up to $100,000, in savings accounts. Due to the volatility of the markets, investors risk losing their principal, or original amount invested. That is a risk, however, many are willing to take.
The New York Stock Exchange boasts 3,000 companies listing 253 billion shares of stock valued at over $11 trillion. Tuesday, over a billion shares were traded.
According to information from Zion’s Bank, many options are available for those who wish to start investing. Options include:
• Stocks – part ownership in a company, measured in shares. Shareholders profit whenever the company profits and have some say in company decisions. Part of the profits are distributed among stockholders as dividends.
• Mutual funds – investments in a large number of corporations, typically 100 to 150 different companies in different industries. A group of investors pool their money through an investment company that purchases securities consistent with the goals of the fund. These goals can be related to income, growth or retirement. Mutual funds are typically the easiest way for investors to enter the marketplace.
• Bonds – a long-term IOU. Bonds show an investor has loaned money to a government or corporation. Government bonds are bought in denominations of $50 to $10,000. An investor receives capital (principal plus interest) when the bond becomes due, which can range from one day to 30 years.
• Options – the right, but not obligation, to buy or sell a security for a set price at a fixed time in the future. An investor basically buys time to decide whether or not to conclude the deal. Those who buy hope the price will drop. Those who sell hope the price will rise.
As a general rule, the lower the risk, the lower the return on an investment; the higher the risk, the higher the return. Bonds have a relatively low risk, while the risk for mutual funds is moderate. Stocks and options pose a high risk to investors.
Nichols said people need to understand the different kinds of money.
“Investments are long-term – a minimum of five years. Use them for things down the road, like retirement,” he said. “Savings accounts are short-term. They are very liquid, meaning they are easy-access. Use them for your immediate needs, like a home or a car. The rates won’t change.”
Compound interest is the driving force to making money, he said. The more money invested, the more it earns. That money in turn earns interest, and the cycle starts again.