The Beginner’s Guide to Investing: Kinds of Investments

Erica Hill

There are a variety of different types of investments you can put your money towards in the world today–from alternative investments, such as gold and real estate, to stocks and bonds. Today, I am just going to get your feet wet with describing the basics of three major types of investments: stocks, bonds, and mutual funds.


Stocks, also known as shares or equity, represent your partial ownership in a company. This gives you rights to give your say on who is hired to the board of directors, for example. It also gives you the right to reap the rewards of a company earning profit and have partial ownership of all their assets. The profits that are paid out are given under the name “dividend.” So, you will earn dividends if a company is profitable. Unfortunately, however, not all companies pay out dividends, so the only way you could earn money from a stock is if it increases in value over time. This might seem like it is too good to be true, but keep in mind that one is not guaranteed any money after purchasing a share in a company. The stocks could decrease in value and you would lose money. The stocks could increase in value and you would earn money. The company could make a profit and you could earn dividends. The company could go bankrupt and you could earn nothing. Stocks are quite risky but offer the potential of great rewards.

Today, brokers have a hold of your stock certificates, or documents that verify your ownership of a share in a company, so that it can be easily traded or sold at any time. In the past, someone would have to physically hand his/her stock certificate to a broker in order to start the process or trading or selling his/her stock.

Debt-financing is when an entity takes on debt and promises to pay back exactly what they loaned plus an interest rate. An example of this is a bond. Equity-financing is when an entity gives partial ownership to numerous people so that they can use their money to operate their company. Financing is essential for businesses who are looking for finances to operate their company. By issuing stocks and bonds, companies offer an array of options for people who are looking to invest their money in their companies.


Bonds are safe investments, compared to stocks, as they guarantee a certain amount of money will be paid back to you by a certain date. These are low-risk, because the ROI (return on investment) is usually quite low. A bond is a type of security which provides a fixed-income, or agreed upon specific amount, in return. If you invest $100 into a bond, which can either be issued by governments or companies, with a coupon (interest rate) of 6%, for example, you will earn $6.00 annually over the course of, let’s say, 10 years until the bond reaches its maturity date, or when the initial amount invested is given back to the investor by the issuer (the government or company that you purchased debt from).

Mutual Funds

Mutual funds were created with the idea in mind that not all investors are created alike. A majority of investors on the market do not have the financial know-how to invest in the absolute lowest risk and highest reward entity. Because people often have little time to invest in digging through financial literature and market trends, mutual funds come in to save the day. Mutual funds are a collection of stocks and bonds, managed by financial professionals so that the investor does not need to do as much work themselves. This seems like a foolproof way to invest and earn money, but as with all investments, there are costs. If a mutual fund depreciates in value over time, there is no guaranteeing you will get that money back. There are also annual fees incurred by using this professional service to manage a portfolio of stocks and bonds for you.

Come back in a couple of weeks for the next part of my series on the basics of investing money!

The Beginner’s Guide to Investing: Understanding Your Risk Tolerance

Erica HIll

When looking to invest for the first time, it is important to understand what you want to invest, where you need to invest it, when to invest it, and why you are investing it. The first subject you want to consider when assessing your risk tolerance is what goals you have in mind for your investments. The second subject you want to consider is your risk personality to help determine the level of comfort you have with varying degrees of risk.

Creating Your Goals

An eighty year-old person looking to stabilize his/her investments versus a twenty-two year-old who is just starting his/her career will certainly have different levels of risk they are willing to take. The eighty year-old is looking to make low-risk investments that will probably earn a much lower interest rate, say of one or two percent, while the twenty-two year old is earning his/her full living from the job he/she has. The twenty-two year old may be willing to invest a large chunk of his/her savings with a higher interest rate that is more risky, because he/she does not need the principal nor the interest for a long time.

Knowing your financial position will help you to make a sound financial strategy and list of investment goals. If you are a billionaire, who makes $5 billion annually, you may choose to invest $3 million in the blink of an eye without much thought to it. This objective is vastly different than, let’s say, newlyweds who are looking to save for their first house. The billionaire might decide to invest in a risky real estate investment, while the newlyweds might decide to invest in bonds or CDs. Identifying your goals will become clearer for you once you understand your investment personality.

Assessing Your Risk Personality

One’s investment personality is defined by two specific character traits. One is simply how daring and risky are you, while the other is about how much time and effort you’re willing to invest into researching before deciding on a particular investment.

Risk is defined by the possibility of loss on your investments. The rewards you might receive are defined by the possibility of earning greater returns than you invested. If you are the kind of person who likes to live life on the edge, experience new adventures constantly, and have great confidence in your decisions and thoughts, then you might be willing to take on higher-risk investments. If you, on the contrary, are the kind of person who likes to make sure you are stable, secure, and have low worry/stress, then you may want to make an investment that is lower risk, which unfortunately has lower immediate rewards. This decision is extremely personal and can only be determined by you. Here are a handful of risk factors you should take into consideration:

  • “Market risk,…
  • “Business risk,…
  • “Political risk,…
  • “Currency risk,… [and]
  • “Concentration risk.”

If you are unsure as to how risky you are, take this risk tolerance quiz.

Are you afraid of getting your hands dirty just yet? Try this free investment simulator, provided by Investopedia, to see how you would do if you had $100,000 to invest!

Come back in a few weeks to see the next installation of “The Beginner’s Guide to Investing!”

6 Free Budgeting-Made-Easy Apps That Connect to Your Bank Accounts

Each of these budgeting apps bring a unique strategy to the table and allow you to accomplish different financial goals with their help. Some allow you to pay for a premium/professional tier service for more features, but they are free otherwise. Here is my review of each of these six powerful budgeting apps from Apple or Android.

Mint allows users to create budget categories and keep track of their spending. It connects with your bank accounts if you let it and allows you to see where you are spending your money, as well. You can re-categorize the what you spent, too. It also provides free access to your credit score. Mint comes from the people who made TurboTax and Quicken, and it puts high priority on securing your information.

Level Money
Level Money creates a digital version of looking into your wallet. It helps organize your income and expenses so that you can see what is left over for you to spend each day, week, and month. It’ll send you consistent reminders about your spending habits and tell you how much you have left in each category. This app helps you to figure out how to reduce debt and save for larger expenses.

Mvelopes is a digital version of budgeting your money in envelopes. You can pay bills from this app, see information about where you spend money and ratings, and get updates in real-time. It helps you to know which envelopes you use more often and how much you spend from each of them. It helps you to know how much money you have left before spending too much.

Personal Capital
Personal Capital is a budgeting tool, but it helps you plan for larger, significant life events, such as college and retirement. It allows you to see your net worth, work on your investment portfolio, and strategize for large, future expenses. You can come up with a retirement plan or even meet with someone in person to work on your investment strategy.

Penny has a comical kick to it. It sends you gregarious text messages with graphs and charts about your spending habits. Penny is a “she” who tells you about your income and expenses, informs you when a bill needs to be paid, and forecasts for next month. You can even cancel some of your services through this app. Penny puts fun back into finances so that it is not as stressful, while also providing powerful, organized, and simple information about your spending habits.

LearnVest allows you to categorize expenses and make goals for yourself. It gives you a financial planner, who can be accessed via email any day of the week, a financial plan, and blogs and classes about how to manage your finances better. It also has a calculator on it to determine your net worth.

Whether you choose Mint or LearnVest, Penny or Personal Capital, Mvelopes or Level Money, or some combination of the six, you are sure to be well on your way to a successful, organized, secure, and safe financial future.

Use This Organization’s Tools to Teach Your Children About Money

In my last post, I spoke about the importance of early financial education. I recently learned of a terrific organization, the National Financial Educators Council (NFEC), that focuses entirely on this topic. Here’s their mission statement: “The National Financial Educators Council (NFEC) is creating a world where people are informed to make qualified financial decisions that improve their lives. We provide financial education resources, promote advocacy campaigns, and help organizations build sustainable financial education programs.” I have to tell you, just reading those words gives me hope for the financial future of our children – and here’s why.

Erica Hill

Teaching your children money management skills early on will make them fiscally responsible adults.

In focusing on creating a standardized financial curriculum, NFEC is addressing a real and dangerous problem in our country: the absence of anything even closely resembling a financial education in our schools. Quite frankly, it’s unacceptable that we are still prioritizing esoteric and unnecessary knowledge, like micro-details of the average Bronze Age Mesopotamian’s diet, over important, real-life knowledge, like how to avoid accruing debt, how to write a resume, and how to create and follow a budget.

People wonder how the Financial Crisis of 2008 could have happened. To me, it’s quite obvious that this stock market crash was a direct result of the fact that most Americans knew next-to-nothing about how to responsibly manage their finances, or why it would be a terrible idea to do things like take out four mortgages on one house. If we want to prevent another financial crisis caused by the same national Achilles’ heel from happening, it is imperative that we start teaching our children the skills they’ll need to become fiscally responsible adults as early as possible. Based on my fervency about this subject, you can imagine how pleased I was to learn that NFEC’s curriculum starts at the pre-school level, when the organization advises that children should be taught basic concepts of numbers, time, money and income, value, market and exchange, choice, and social values.

If you’d like to learn more about the NFEC’s advised curriculum or the opportunities they provide for guided financial education, head over to their website at Your children will thank you for it one day.