Your finances are important, so much so that you should not hesitate to exert all possible effort towards making sure that your investments are as successful as possible. Part of this means asking all of the questions that you need to ask so that you know what you are doing, even if doing so can be potentially embarrassing. After all, even the worst embarrassment is nothing compared to the pain of an investment that has lost a significant percentage of its value because of a preventable mistake on your part. We'd way rather have a red face than be severely in the red. At least, we hope you agree with us. With that, we came up with a list of 10 investment questions you should never, ever be afraid to ask
Where Should I Start?
If you have some money to spare, you could spend it on something that you want but don't need, but chances are good that it will be better for you to do something else with it. Generally speaking, you should use spare money to pay off high-interest debt, create a nest egg for emergencies, and invest in hopes of earning a future return in that order. This is because high-interest debt tends to cost more than what most investments will be making, while having a nest egg can prove useful in all sorts of situations.
How Do I Open an Account?
To start investing, you have to open an account with a brokerage. Some brokerages come with investing advice as well as other investing resources in exchange for higher fees, which make them suitable for those with neither investing expertise nor investing experience. In contrast, other brokerages come with none of those investing resources but offer the lowest fees, which make them better-suited for those who are either skilled investors or unafraid to make mistakes.
What Is a Stock?
Corporations use both debt and equity to pay for their assets. A significant part of their equity will come from their capital stock, which is what has been invested in them by interested individuals. Generally speaking, capital stock can be divided into both common stock and preferred stock. Investors can buy common stock in exchange for a share in the corporation's ownership as well as the chance of a stock price appreciation. In contrast, investors tend to buy preferred stock because of their guaranteed dividends, though its price can appreciate as well.
What Is a Bond?
A bond can be issued by either governments or corporations. It is essentially a loan in the form of a financial instrument, so much so that a bondholder can even expect to receive regular payments of the bond's interest. Generally speaking, bonds tend to be safer but also less profitable than stocks, but it should be noted that they can have just as much variation as stocks, meaning that investors should always scrutinize the bond ratings issued by various credit rating agencies before making a decision.
What Is a Derivative?
Derivatives are financial instruments based on something else that can be bought and sold in such markets. For example, a stock option provides the option-holder with the choice to either buy or sell a specific number of a specific stock at a specific price by a specific time, which means that it can be used to protect against price changes as well as profit from them. Derivatives have potential, but they are also more complicated than either bonds or stocks, meaning that investors should be careful with them.
Do I Have to Have a Lot of Money to Invest?
Investing has become extremely accessible. As a result, even if you don't have a lot of money to spare, you should be able to invest on your own. However, if you are not confident in your investing skills, you should consider buying shares in mutual funds and the like, which allow investors to pool their resources to be invested by a professional manager in exchange for a relatively small fee.
How Much Does It Cost to Invest?
This is actually a somewhat complicated question because different brokerages have different prices for brokering transactions. For example, some brokerages charge a fee for each transaction, while other brokerages charge a fee at the end of a specified period based on the value of the client's investments. As a result, you need to make sure you know how your brokerages charge their clients before you make a final choice.
What Is a 401K?
Some companies offer their employees the chance to save for their future retirement through 401Ks and other retirement saving plans. A 401K lets the employee set aside some of the money in each of their paychecks, which will be invested in stocks, bonds, and other financial instruments. These sums are deductible on tax returns while also matched to some extent by the companies, meaning that they are extremely sensible from a financial perspective.
How Should I Invest for Retirement?
Generally speaking, you should start saving for retirement as soon as possible because even small sums can turn into respectable savings with sufficient time because of the power of compound interest. Furthermore, you should start with a higher ratio of stocks to bonds because you want to build up your savings while you still have the time. However, as you begin approaching your retirement age, you should start switching to a higher ratio of bonds to stocks because you want to make sure that your savings will be there when you need them instead of being lost to an economic bust of some sort.
Do I Need a Financial Adviser?
Everyone can benefit from financial advice, if only because having a different perspective can help investors look past their own biases. However, whether you need a financial adviser or not depends on how much time and effort you plan to put into your investing. You can make up for the lack of financial advice from a professional with sufficient hard work, but if you are either unable or unwilling to do so, then getting a financial adviser is probably a good idea.
Of course, there are more investment questions that investors should not be embarrassed to ask than the ten that are listed here. As a result, if you want to maximize the returns on your investments while also minimizing the risk on your investments, you need to conduct more research on your own.
Written by Garrett Parker
Read more posts by Garrett Parker