Investments

Investments are assets purchased with the expectation of generating income or appreciation over time. Building a well-diversified investment portfolio is essential for growing wealth and achieving long-term financial goals.

Investment Vehicles

For detailed information on specific investment types, see our guides:

Stocks - Understanding stock investments and equity ownership
Bonds - Fixed-income securities for stability and income
CDs (Certificates of Deposit) - Safe, predictable savings options
Short-Term Investments - Options for goals within 1-3 years

Stocks (Equities)

Ownership shares in companies:

Individual Stocks - Direct ownership in specific companies
Mutual Funds - Professionally managed portfolios
ETFs - Exchange-traded funds (like mutual funds but trade like stocks)
Index Funds - Track market indices at low cost

Bonds (Fixed Income)

Loans to governments or corporations:

Government Bonds - Treasury, municipal bonds
Corporate Bonds - Company debt
Bond Funds - Diversified bond portfolios

Real Estate

Property investments:

Direct Ownership - Rental properties
REITs - Real Estate Investment Trusts
Real Estate Funds - Diversified property investments

Alternative Investments

Commodities - Gold, oil, agricultural products
Cryptocurrencies - Digital assets (high risk)
Private Equity - Investments in private companies
Hedge Funds - Sophisticated investment strategies

Why Invest?

Beat Inflation

Cash loses purchasing power over time due to inflation. Investments help preserve and grow purchasing power.

Build Wealth

Historical returns show that investments significantly outperform cash over long periods:

Stocks - Average ~10% annual returns (long-term)
Bonds - Average ~5% annual returns (long-term)
Cash - Typically 1-3% (barely keeps up with inflation)

Achieve Financial Goals

Investments help you reach major goals:

Retirement security
Children's education
Major purchases
Financial independence

Core Investment Principles

Diversification

Don't put all eggs in one basket:

Spread investments across asset classes
Diversify within asset classes
Reduce risk through variety

Asset Allocation

Mix of stocks, bonds, and cash based on:

Time Horizon - Longer = more stocks
Risk Tolerance - Higher tolerance = more stocks
Financial Goals - Match investments to goals

Time in Market

Start early to benefit from compound growth
Stay invested through market cycles
Avoid trying to time the market

Cost Management

Low-cost index funds typically outperform high-cost active funds
Fees compound over time, reducing returns
Focus on expense ratios and trading costs

Building Your Portfolio

Start with Basics

Emergency Fund - 3-6 months expenses in savings
Employer Retirement Plan - Maximize match, then contribute more
IRA - Traditional or Roth depending on situation
Taxable Brokerage - For additional investments

Asset Allocation Guidelines

Age-Based Rule of Thumb:

Stocks = 110 - your age
Example: Age 30 = 80% stocks, 20% bonds

Risk-Based Allocation:

Conservative - 30-40% stocks, 60-70% bonds
Moderate - 60-70% stocks, 30-40% bonds
Aggressive - 80-90% stocks, 10-20% bonds

Rebalancing

Periodically adjust portfolio back to target allocation
Sell winners, buy losers (maintains diversification)
Can be done annually or when allocation drifts significantly
Learn more about rebalancing strategies

Investment Accounts

Tax-Advantaged Accounts

401(k)/403(b) - Employer-sponsored, pre-tax or Roth
IRA - Individual retirement account
HSA - Health savings account (triple tax advantage)
529 Plan - Education savings

Taxable Accounts

Brokerage Account - Standard investment account
Taxable but flexible - No contribution limits or withdrawal restrictions

Common Investment Mistakes

Not starting early - Missing years of compound growth
Trying to time the market - Usually results in poor returns
Over-trading - High costs and taxes reduce returns
Lack of diversification - Too much concentration risk
Emotional decisions - Buying high, selling low
Ignoring fees - High costs eat into returns
Not rebalancing - Portfolio drifts from target allocation

Investment Philosophy

Passive vs. Active Investing

Passive - Low-cost index funds, buy and hold
Active - Attempting to beat the market through trading
Evidence - Most active managers underperform over time

Dollar-Cost Averaging

Invest fixed amounts regularly
Reduces impact of market timing
Takes emotion out of investing
Works best with dividend reinvestment

Long-Term Perspective

Markets go up and down
Focus on long-term trends
Avoid panic selling during downturns
Understanding historical returns helps maintain perspective

Getting Started

Establish emergency fund - Before investing
Maximize employer match - Free money
Open IRA - Additional retirement savings
Choose low-cost index funds - Broad market exposure
Automate contributions - Set it and forget it
Stay the course - Don't react to short-term volatility

Investments are the engine of wealth building. Start early, invest consistently, diversify broadly, keep costs low, and stay invested for the long term. Time and compound growth are your greatest allies.