Investing: How to Lower the Risk, part 2

Investing: How to Lower the Risk, part 2

By Keith Bunn Jr.

April 21, 2013

Hi everyone! I hope whenever you are reading this, you are doing well!

In this week's blog, we will discuss the different types of investments you can buy. But first, let's take a moment and review last week's blog.

Review

Remember, there are 3 things you need to have or do when it comes to investing. First, you need knowledge, you need to know all the ins and outs of the investment you're thinking of getting into to the point you can explain it to someone else and they get it. 

Second, you need to be diversified. Don't put all your money in one type of investment. Because if the market goes down and you have the majority of your money invested in one company stock, or investment you have a greater risk of losing all your money. Think of it this way, investing is like manure, keep it all in one place, it stinks. Spread it around, it grows things.

And last, but not least, you need to leave your investments alone. If you're not willing to leave them alone to grow for at least 5 years, you don't need to be investing at all.

Types of Investments

Most people are familiar with a C.D. you can get at your local banks. C.D. is the abbreviation for Certificate of Deposit, which means that you get a certificate when you made a deposit in your bank's special savings account. They are low risk accounts and make a horrible rate of return, especially for the time you have to leave it in there for. And if you take your money out early, you have to pay a penalty for early withdrawal. I don't recommend people getting C.D.'s because of those reasons.

Money Market accounts are another low risk investment you get with an investment broker. You can also get Money Market 'type' accounts at you local banks. Again, these accounts make a horrible rate of return, but what I like about them is that you can normally get them with either check writing privileges or a debit card or both. They also don't  penalize you if you write a check or use the debit card as long as you don't go over a specific amount at any one time. This is a great place to keep your emergency funds just for that reason.

Single Stocks: When you buy stock in a company, you are buying a very small piece of the company. The rate of return on these stocks can be high but can go up and down as the value of the company goes up and down. If the company is profitable, they may issue portions of those profits to you called dividends. These type of investments carry high risk for the simple fact you are not diversified enough. Again, all your eggs are in one basket. I do not recommend single stocks to anyone for that reason, no matter what company the stock is in.

I'm going to stop here for this week's blog just so I don't make it too long. I will pick this up again next week with Bonds and Mutual Funds.

Questions

1) Have you ever owned one or more of these type of investments? If so, how did it go for you?

2) Do you keep your emergency fund in any of these type of investments?

The main reason I do all this is to give people hope and to try to inspire others. To make them think about their finances, whether they are young or old, so they can win financially.

If you have any questions for me about my posts or about your finances, you can call me at (616) 454-2046 or e-mail me at cavuscoaching@gmail.com. You can also find more money news, facts and ideas, on my Facebook and/or Twitter pages. I'd be grateful if you followed me. Thank you!