Investment fundamentals: Investing 101

Why should I invest?

Everybody likes making money. If you are in high school or college, maybe you already have an after-school or summer job. If you’re beyond high school or college, maybe you are working full-time and collecting a salary. That’s great. Unfortunately, working for a paycheck only gets you so far. Once you spend what you make, that money is gone.

Investing lets you put some of what you earn to work. Think of it as working smarter, not harder.

It’s safe to assume you have at least one goal that will cost money to achieve, right? Maybe you want a new car, a house, or to pay for your kids’ college education. Or maybe you’re thinking of the long game and you want to start saving now for retirement. Investing your money helps get more ‘bang for your buck’ so you can accomplish more.

Depending on how you invest, it’s possible to attain all of the above goals. But first you’ll need to understand the basics of investing.

But first, a few words about risk

Everyone thinks about investing as a way to make money. And it is. But there is no such thing as a 100% risk-free investment. However, risk exists on a spectrum. Some investments carry a small risk; others, much more risk. Generally speaking, the bigger the potential gain, the greater the risk of loss.

What types of investments are there?

Investment options range from a checking account at your local bank to real estate on the other side of the world. For now, we’re going to keep it simple and talk about the four basic types of investment instruments: cash, bonds, stocks, and mutual funds.

• Cash is the least risk investment. Cash investments are commonly in the form of savings accounts, money market accounts, and certificates of deposits (CDs).
• Bonds are loans to governments, companies, or municipalities in exchange for interest income in the form of coupon payments (with the exception of zero-coupon bonds). At the end of the loan term, when the bond reaches maturity the bond issuer is required to pay back the face value of the bond in full to the investor.
• Stocks are shares of ownership in a company. Shares may increase or decrease as the perceived value of the company rises and falls. Some companies distribute part of their earnings to common stockholders in the form of dividends. In this case, investors may choose stocks based on their dividend payments in an effort to capture an income stream.
• Mutual Funds are a vehicle which can hold hundreds of stocks or bonds. Investors may purchases shares of a mutual fund to gain exposure to a greater number of stocks or bonds than they otherwise may have if they had purchased each individually.

How can I learn more?

There are many things to contemplate when choosing an appropriate investment for you; goals, time horizon, tax considerations, and risk tolerance are a few of many considerations. Moreover, learning about investments can be a time-consuming process. There is a lot of good information available online from reputable financial institutions and finance education websites. Prior to investing, we recommend you speak with an investment professional to discuss your specific requirements and goals.

Important information

Information provided by SEI Investments Management Corporation (SIMC). This information is for education purposes only and should not be relied upon by the reader as research or investment advice. Investing involves risk, including possible loss of principals. Bonds are subject to interest rate risk and will decline in value as interest rates rise. Diversification does not ensure a profit or guarantee against a loss.

Neither SIMC nor its affiliates provide tax advice. Please note that (i) any discussion of U.S. tax matters contained in this communication cannot be used by you for the purpose of avoiding tax penalties; (ii) this communication was written to support the promotion or marketing of the matters addressed herein; and (iii) you should seek advice based on your particular circumstances from an independent tax advisor.