DISCUSSION 2 - Graded Discussion Board 2 - Daniel Friend...

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Graded Discussion Board 2 - Daniel Friend 1461-1450 Part I - Investing Basics This introduction to investing section of the website is a great way to understand basic financial terms as well as the basics to investing. The introduction talks about how to save for the future, your kid's education, and retirement. Also, an important rule to follow is to pay off any outstanding debt before you start to save. It would be hard to invest and earn as much interest to pay off the interest accumulated on the debt (credit cards). The introduction also advises to invest as young as possible. It doesn't have to be that much money in the beginning because of the power of compounding interest. The web site also suggests that in order to be able to save, you should pay yourself first before your bills each month--only if you have no outstanding debt. Also, there are many different types of investments that occur over different time periods. As learned in class, a dollar today is not worth a dollar in the future. It's important to understand that investing a dollar now is better than investing in the future because of compounding interest, or earning interest on interest. A dollar is usually worth less in the future than the present due to inflation. Stocks are simply individual investors buying into a company. Investing in stocks, however, is not as easy as it looks. Sure you can call a broker and place an "order," but is it a good choice? MotleyFool states that investing in stocks should be a long term investment because of their risk. You should only invest in stocks if you don't your need your money in the near future. Usually people use brokers to buy stocks, but the internet is now another option. Also, trading stocks is an important aspect of investing on the short term but is much riskier. Mutual funds are the preferred way to invest because they are diverse and liquid. Being diverse is important because if one stock in the mutual fund does bad while one does really good, they offset each other. They usually have less risk involved than a single stock because of its diversity. However, you as an investor don't really have any control with the fund you invest in. The company that you invest in, has "professionals" take care of the investments. Motley Fool also introduced bonds to me. There are a few different kinds of bonds that also have different time frames. You could buy a bond that matures anywhere from a couple of weeks to a couple of years or more. Government bonds are the safest but also have the lowest interest rates. Government bonds are 100% guaranteed to pay unlike a bond from a company that may go bankrupt. Finally, the website talks about success in investing. Risk is a huge determining factor in investing. It can either be used for a big gain or an even bigger loss. Stocks, the most risky investments over the short term are very risky but over the long run they kind of even out. Therefore its important to know how long you to invest for and wether or not
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you will need the money any time soon. Part II - What does it take to invest like a Fool?
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This note was uploaded on 04/20/2008 for the course FIN 3403 taught by Professor Tapley during the Spring '06 term at University of Florida.

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DISCUSSION 2 - Graded Discussion Board 2 - Daniel Friend...

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