day, more people are investing their money. Some make millions, but many lose
their life savings by making bad decisions. In today's volatile market, stock
trading is especially risky.
TERMS TO KNOW
• Certificate of Deposit – A low-risk investment you make at a bank for a fixed period of time. Interest is much higher than a passbook savings account, but you will be penalized if you withdraw your money before the term of the deposit is completed.
• Stock – A share of ownership in a corporation.
• Dividend – A share of a company's profits paid to those who hold stock in that company.
• Bond – A loan made by an investor to the government or to a corporation, which is paid back with interest at a fixed time. Bonds are generally lower risk investments than stocks.
• Mutual funds – A portfolio of stocks, bonds, cash, and other investments. These investments are bought and sold by a professional manager, so the risk is generally lower than that of an individual stock. In addition, mutual funds are categorized according to how risky they are and how quickly they grow.
• Broker – A professional who buys and sells stocks for you.
• Commission – The amount of money you pay to a broker to carry out a transaction.
• Day-trading – The risky and difficult practice of buying and selling stock constantly on the basis of small, short-term gains and losses.
Here are some suggestions from the Investing Online Resource Center on how to be a smart consumer:
• Start small. There is no sense in throwing all your money in one stock early in life. Rather than looking for fast money, try to make small gains. When you get a little more experience, move up to higher profile stocks or mutual funds.
• Diversify. That is, spread your money out. Try not to put all your money in one market. If, for example, the technology sector takes big losses, you will be protected by having some money in another sector, such as retail or manufacturing.
• Don't bail out on mutual funds. Most mutual funds are supposed to generate growth over time and thus are geared toward long-term investors, not day traders.
• Information is power. You can never have too much information about a company that you are interested in. If you invest in a company but don't know what they're doing, you could lose a major part of your investment. Some Internet sites and online brokers have research available for you; you can also check out the company's website.
• Don't forget about commissions. The fees that you pay to your broker can eat up a significant portion of your returns.