For people who have not given their financial future a second thought, the term “Financial Planning” might be a scary one. Investments will be a smart way to invest money for your future, but it will be confusing for those who have no experience in the financial business. Before you consult a financial planner it’s wise to become familiar with some of the terminology that you are likely to hear from him or her.
* Mutual Fund-An investment created with cash that is collected by individuals with an investment goal in mind. The mutual fund is handled primarily purchase a person known as the fund manager. Mutual funds are easy and cost economical, since you’re not responsible for making the decision as to where to invest the money.
* Asset Allocation Fund-A mutual fund that incorporates many types of investments such as stocks, bonds, real estate, and foreign stocks. These are typically for the small investors who need to invest in a variety of funds in order to keep up a constant return.
* Risk-Return Trade-Off-This is the amount of money that you will stand to lose versus the amount of money you are willing to invest. Investments that are low-risk usually have low payoffs, while investments that are high risk usually have higher payoffs. When investing money you must determine the amount of money you’ll lose before determining how much money you will invest and wherever you will invest it.
* Compounding-Money made from an investment that will then be reinvested into the same or another investment to generate its own earnings.
* Bonds-Money that is loaned to a company or the government at a specified interest rate. The company can usually offer some kind of document that states the amount loaned and the agreed upon interest rate and the total amount which will be repaid at a specific time or “maturity date”.
* Stocks-Pieces of a company that are for sale. One would buy stocks from a company at a given price in hopes that the company would gain a significant amount of money which they would be able to sell the stocks at a higher price.