Don’t Put All Your Eggs in One Basket
Many sectors are negatively correlated, so by diversifying your portfolio you may be able to better weather a market downturn.
Dealing with Investment Risk
Every investor needs to know investing in the stock market requires a thorough understanding of the risks involved. With any investment there is a risk-return trade off based on a degree of uncertainty—the greater the risk, the greater the potential for return if that risk pays off.
Margin Trading
When an investor purchases securities, the securities may be paid in full, or part of the purchase price can be borrowed from a brokerage firm. If funds are borrowed, an investor is trading “on margin.” In order to trade on margin, an investor must open a margin account.
Spin-Offs
A spin-off occurs when a parent company divests itself of a subsidiary or a division of the company. The subsidiary or division then becomes a separate, independent company.
Employee Stock Purchase Plans (ESPP)
An employee stock purchase plan (ESPP) is a plan that allows a company to compensate a broad group of employees with options to buy the company’s stock at a specified price, usually at a discount. Many large companies use these plans as an employment incentive, giving employees an opportunity to share in the growth potential of the company’s stock. Generally, the employee is not taxed at the time the stock is purchased.
I Bonds
The I Bond is a type of savings bond, issued directly by the U.S. government. I Bonds are available through banks, most financial institutions or directly over the Internet at www.treasurydirect.gov.
Fixed-Income Investment Selection
Fixed-income investments are designed to bridge the gap between after-tax income and your desired after-tax spending.
Cost Basis Consideration
When determining your capital gains and losses, cost basis information is essential.
Mutual Fund Fees and Expenses
Mutual funds incur costs that must be paid from fund assets. These costs are incurred through marketing, advisory fees, accountants’ fees, legal fees, custodial fees, etc. Simple transactions such as buying, selling and exchanging shares can be costly.
Mutual Funds—Different Types
Mutual funds can be classified into several sub-groups: types of funds, open-end vs. closed-end and share classes. An investor who chooses to invest in mutual funds should understand the various differences between funds to ensure that their goals and objectives are inline with those of the fund.