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Choosing an Investment




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This article is from the Investing Articles: Stocks and Options series.

Choosing an Investment

When you choose to invest your money, the final decisions are yours alone. The risk of the investment also is yours.

Before you invest, consider your complete financial situation, looking at both your current and future needs. In general, investors should avoid higher-risk investments unless they have a steady income, adequate insurance, and readily accessible cash reserves in case of a loss.

Remember these investment basics:

Rule one:

No matter how you choose to invest your money, there will always be a degree of risk involved.

Rule two:

Risk and return go hand-in-hand. Higher returns mean greater risk, while lower returns promise greater safety

Rule three:

Don't invest in anything you don't fully understand.

Setting Your Investment Goals

Ask yourself, "What do I want to accomplish through my investments?" For most investors, the following investment goals or objectives, or some combination of these, provide an initial answer to that question:

Safety

This objective reflects a conservative investment philosophy with minimal risk of loss of the original investment (the "principal").

Income

An "income" objective is achieved by purchasing investments that provide a stream of income through regular payments, which may or may not decrease the invested principal.

Growth

This category refers to investing for long-term growth or appreciation in market value. Growth investments carry a higher risk than either safety- or income-oriented investments. Growth investments generally provide little or no dividend income.

Speculation

Speculative investments carry a higher-than-average possibility of loss. This strategy often includes short-term trading of new or unproven companies' stocks or options. Although there is the possibility of higher and faster rewards, speculative investments also are high risk, meaning there also is the possibility of larger and faster losses of some or all of your principal.

Balancing "Risk" and "return" to meet your goals

As an investor, you choose your investment goals with an emphasis on one or more of the above categories. You may also wish to allocate portions or your investment portfolio to more accurately express your investment goals.

For example, if you have $10,000 to invest , you may choose to invest 70 percent ($7,000) in income securities, 20 percent ($2,000) in growth securities, and 10 percent ($1,000) in speculative securities.

Of course, setting a goal and reaching it are two very different things. You may need professional assistance to realize your investment goals and to achieve your financial objectives.

If you choose to work with a broker, communicate your investment goals and financial objectives clearly. Put it in writing, and keep a copy for your own records.

Remember, the more money you want to make from your investment, the more risk you must be willing to take. Risk means that you may lose all or part of your principal. If a high level of risk makes you uncomfortable, select your investments accordingly.

Get More Information

There are many sources of information about a company in which your are interested in investing. If you don't know where to look, start by contacting the Oregon Securities Section. In most cases, securities must be registered with the securities section in each state where they are sold. Information about the company may be available to the public. You should also ask your brokerage firm or investment adviser to assist you in gathering information about the company in which you may invest.

Most companies whose stock is traded over-the-counter or on a stock exchange are required to file"full disclosure" reports on a regular basis with the Securities and Exchange Commission (SEC). These comprehensive reports are av ailable for a modest copying charge by writing to:

Public Reference Room, Mail Stop 1-2
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-1002

 

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