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Finding Your Way in the Investment Landscape
By: Deborah A. Cary, Financial Professional
MONY Life Insurance Company, New York, NY (MONY)
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With the unpredictability of certain investment vehicles and the whirlwind of advertising currently besieging consumers from every direction, boasting the best investment and the fastest and cheapest ways to invest, it's easy to get intimidated when considering where to invest your money. But don't be dissuaded, for every individual there is an investment option that's right.
You have to think about it simply, investing is nothing more than putting the money you have to work for you. Beyond that, it becomes a matter of deciding how fast and how hard you want this money to work.
The biggest challenge investors face is developing discipline. You have to make it a point to set money aside as often as possible, effectively reducing your short-term income in favor of the long-term benefits investing can create. But what options exist and which ones are right for you?
This is never an easy question to answer. First you have to decide what your financial goals are. Why are you investing? What do you hope to accomplish? Then, be honest with yourself and determine your risk-tolerance, or your ability to ride-out market fluctuations without panicking. Risk-tolerance varies greatly from investor to investor, depending on age and what stage you happen to be at in your life. The goals and risk-tolerance for a single 25-year-old with no children will not be the same as those for a married 45-year-old with three children. Whatever your risk-tolerance, and whatever your goals, you should view investing as an integral part of any healthy financial plan.
To get a complete picture of the different investment vehicles available to consumers, and which ones are best for you, you should arrange a meeting with your financial professional. To give you a jumping-off point, though, below are brief descriptions of some of the most commonly used investment vehicles. These are by no means all the options available to investors, but merely a snapshot of some of the vehicles you may consider as you begin to establish the foundation for your financial future.
Annuities are insurance products that may be a low-risk way to ensure yourself income in the later years of your life. You purchase an annuity by paying a sum of money, either all at once or over a period of time, to an insurance company. In return, the insurance company agrees to provide you with a steady income beginning at an established date in the future and usually extending to the time of your death. However, there are annuity products which exist that can arrange for the payments to continue after your death in order to provide for a surviving spouse.
Certificates of Deposit or CDs are also a low-risk way to make sure you have access to money in the future. A CD is purchased for a specific amount of money and is subject to a fixed rate of interest for an established period of time. CDs can be purchased for as short as a week or for as long as 10 years (longer time periods usually carry greater interest rates). When the specified time is up, you receive the face value of the CD, what you initially paid, along with any accrued interest.
The benefit of a CD over many other investment vehicles is that they are often FDIC insured, assuming the financial institution you purchased it from is also insured. This means that your money is protected. The drawback, however, is that there are usually penalties for cashing-in a CD before the specified time.
Stocks are possibly the most well known and most talked about option available to investors. Owning shares of stock in a company is equivalent to owning part of that company. Thus, the success of the investment is contingent on the company's performance. If the company does well, the value of the stock should increase. Conversely, if the company does not do well, or if something happens to disrupt its activity, the value of the stock and your investment may decrease. Many companies also distribute a portion of their yearly earnings to stockholders; these distributions are called dividends and are distributed on a per share basis.
The simple rule associated with stocks is to buy when they are priced low and sell when they are priced high. But needless to say, this is easier said than done. Using stocks as an investment vehicle carries with it many risks, and an investor should be certain to conduct as much research as possible and to solicit the advice of a trusted financial professional before buying into any investments.
Mutual Funds are one of the most popular investment choices for individuals seeking long-term growth and a greater stability than can be found in owning individual stocks. Mutual funds pool the money of its investors and spread it over a number of investments. All mutual funds are controlled by a fund manager and have certain, pre-established objectives, which determine what types of securities it invests in. Most mutual funds are part of a family of funds, each with their own objectives, each with their own portfolio of securities. Before deciding on any one mutual fund, you should first research the objectives of the fund and decide which ones most closely match your own.
The benefits of mutual funds over individual stocks are that mutual funds provide diversity, reducing its susceptibility to market fluctuations. Mutual funds also have the benefit of being professionally. However, mutual funds are not without risks of their own and it is important to remember that values increase and decrease along with the component securities, and so are not immune to market down-turns.
Bonds carry less risk than either stocks or mutual funds. Through the purchase of bonds, you are essentially loaning either a governmental unit or company money. In return, the entity that issued the bond agrees to repay the face value of the loan with interest at a specified time in the future (date of maturity). There are many types of bonds, however the two most popular are corporate bonds and municipal bonds.
Corporate bonds are issued by publicly owned and traded companies. The risk in purchasing corporate bonds is that if the company goes out of business or files for bankruptcy, they may not be able to re-pay your principal (face value) or interest.
Municipal bonds are issued by state or local governments. Municipal bonds traditionally have a lower rate of return than corporate bonds, but the benefit is that income resulting from municipals is exempt from federal income tax.
As you can see, all investing carries with it at least a measure of risk. But with risk can ultimately come reward. However, before making any decisions, you should always consult those closest to you and enlist the advice of a financial professional you trust to review with you all the options that are available.
Deborah A. Cary is a Financial Professional in Clifton Springs, New York
MONY Life Insurance Company provides life insurance nationwide and annuities in New York. Life insurance and annuities are issued outside of New York by MONY Life Insurance Company of America. Individual disability income policies are issued by third party carriers through MONY Brokerage, Inc.. MONY does not provide legal or tax advice and recommends that legal and tax issues be reviewed with counsel or your tax advisor.
30020-GE04 (exp. 03/06)
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