When you first start thinking about investing — whether it’s because you’re eligible to contribute to a retirement plan at work or decide to open an investment account on your own — you may feel overwhelmed by all the decisions you have to make. For instance, you’re probably asking yourself whether stock or bonds are a better choice for you, or if you should choose mutual funds that invest in either of these assets. And beyond figuring out which types of investments are most appropriate, how do you choose among the thousands of individual securities and funds available?
But at the core of most of the critical choices you make as an investor are a few basic principles, or ABCs. Mastering these ABCs — such as risk and return, compounding, and how inflation affects your portfolio — and understanding how they apply to your own financial goals and circumstances can help guide you through many of your most important investing choices.
Investment risk and return are inextricably linked. One of the keys to a sound investing strategy is finding the right balance between them in light of your financial goals and time frame to meet them.
Yield is an important measure of the income you earn on an investment. Find out about the different ways it’s measured and how you can use it to compare the performance of some — but not all — investments.
