Equities, bonds, mutual funds, exchange traded funds – the list of financial products goes on and on. For retail investors, understanding how and why to invest is as important as knowing which securities to buy. Author Vishal Reddy explores the investment universe by delving into the fundamentals and creating a straightforward template for rookie investors to follow. His narrative covers myriad topics, and the novice looking to pull back the curtain on the investment sector will find much useful knowledge in this informative primer.
In investing, time is the great equalizer.
The world of investing can be a confusing place. However, for an individual seeking to achieve financial goals, investing in securities is a must. Each investor has his or her own timeline, expectations and desired outcomes, but the basics of investing can provide a roadmap to financial markets. One of the most crucial aspects of creating a robust financial portfolio is the ability to understand the time value of money. For people willing to forego expenditures now to have money available in the future, the compensation for waiting comes in the form of returns. An investor with $1,000 can place the money in a certificate of deposit at 3% and in one year will accumulate $1,030.00. That person could then let the $1,030 sit for another year at 3% and, 365 days later, would find the account valued at $1,060.90. Financial planners recognize this phenomenon of reaping returns on previous returns as “compound interest.”
Investors who allow the time value of money and compounding to work over an extended period can see extraordinary returns on investments. This is true whether cash...