So I recently did a lesson for my mathematical literacy class (my current side gig) on some basic personal finance topics. I reviewed with them the Pyramid of Investment Risk and thought I’d share it here for any new investors like myself. I’ll admit I had to look up most of the words before I presented the lecture as I am still pretty new on My Early Retirement Journey.
|(source: Investor Education 2020)|
What the heck does all that mean?
What are Futures? A futures contract is a commitment to buy or sell a specific amount of a commodity at a specific future date and price. Futures contracts deal in products ranging from corn, soybeans, wheat and cattle to gold, crude oil, Japanese yen, and U.S. Treasury bonds.
What are Bonds? When investors buy bonds, it means they have loaned money to a company or a governmental entity.
What is a Stock? A stock is an investment product that represents partial ownership of a company or corporation. The stock market represents all the companies that sell their shares to the public. It is the primary place for companies to obtain financing for their operations and for investors to profit on the growth of those companies. There is therefore a close relationship between the stock market and the economy as a whole.
What is a Mutual Fund? A mutual fund invests the pooled money of its shareholders in various types of investments.
What are Exchange Traded Funds? Exchange-traded funds are a cross between mutual fund index funds and stocks. Like index funds, ETFs hold baskets of securities that follow indexes.
Index funds. What that? These are relatively simple funds that aim to track indexes, or broad baskets, of different securities. Their goal is to match a particular market index such as Standard & Poor’s 500-stock index (S&P 500), which measures the performance of 500 large U.S. companies.
What are securities? Securities allow you to own the underlying asset without taking possession.
For example.. Municipal securities are how government agencies borrow money to finance investments and cash flow needs.