If
you think of your investment portfolio as a house you’re
constructing, then key investment concepts such as
risk
and
return,
compounding,
and
leverage
are its foundations. Without solid foundations,
your house may last a while, but after a while it will start to buckle
and sag — and could eventually collapse. The same is true of your
portfolio. If it’s not built on solid foundations, you’re at risk of investing
randomly and potentially losing a great deal of money.
The same basic principles hold true whether you’re investing in a mutual fund for the first time or are an experienced investor purchasing more complex financial products, such as derivatives or convertible securities. So if you’re new to investing, want to refresh your knowledge, or build on what you already know, familiarizing yourself with the following concepts is the foundation of a smart investing strategy.
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.
From buying a home to buying stocks
on margin, using leverage can give you more purchasing
power.
Related topics
Understanding yield curveYield curve helps fixed-income investors manage their portfolios and economists and investment analysts forecast the direction of the economy.
