Investing 101: A Beginner's Guide

Investing can be complicated and overwhelming, especially if you’re trying to do it on your own. Understanding the fundamentals can help you make sense of the risks and opportunities associated with investing. It can also help you make more informed—and more confident—decisions about your portfolio, so you can put your money to work toward achieving your financial goals.

Understanding the Major Asset Classes

There are four major asset classes, each of which behaves differently in a variety of market situations and is associated with different levels of expected investment return and risk:

• Cash and cash equivalents provide liquidity within a portfolio. This asset class includes CDs, money market accounts and U.S. Treasury bills, which typically provide higher yields than a savings account and can easily be converted into cash, if necessary. While cash and cash equivalents tend to have the lowest risk among the major asset classes, their returns may not keep up with inflation over the long term

 

• Fixed income or Bonds represent loans to a corporation, financial institution, government or municipality. In return for the money it borrows, a bond issuer promises to make regular interest payments and to return the bond’s par value on a stated maturity date. Historically, bonds have been less risky than stocks, but tend to be more sensitive to interest rate fluctuations and have a lower return on investment. Investors often use bonds to provide a steady flow of income

 

• Equities or Stocks represent a share of ownership in a company. If you own a stock, the value of your shares may fluctuate over time. Historically, stocks have provided the highest return among the asset classes. They typically form the basis for growth in an investment portfolio.

 

• Alternatives are assets that fall outside of the traditional markets, such as real estate and private investments. These are generally the highest risk but may offer qualified investors the opportunity to diversify their portfolios and help reduce overall portfolio volatility.

 

Asset allocation—the process of combining different asset classes in your portfolio—is the most important determining factor of risk exposure and investment returns. 

Getting Started

If you’re interested in investing, there are three things you should remember:

1. Time is money. The earlier you start investing, the more opportunity you will have to grow your investments due to the power of compound interest.

 

2. Don’t let your emotions get in the way. Even the savviest investors fall prey to emotional decision-making. Market movements may make you uncomfortable or anxious, but developing a plan and having the discipline to stay the course can help you avoid common mistakes such as buying and selling at the wrong time.

 

3. Having a plan—and professional advice—can help. Working with a Financial Advisor can help keep you focused on your long-term goals, taking emotions out of the equation

 

When you work with a Financial Advisor, you get the best of both worlds—the freedom to make your own investment choices with the guidance of a professional who understands and cares about your goals. And remember, investments are just one aspect of your financial life. An experienced Financial Advisor can help add value not just to your portfolio, but also to other aspects of your overall wealth management strategy, from saving for college and planning for retirement to creating a meaningful legacy.