Investments 101

Simple stated, Investing is basically when you take your hard earned money and use it to generate more wealth, either immediate or long-term. People do this in numerous ways. Remember, it is very important to have some savings before you start investing. And never put all your eggs in one basket.


So lets look at the different types of investments. Remember, this is just a rough guideline of types of investment, and I have not covered them all. Do research other sources at bottom of this post, for additional details.

Usually 401K and IRA are considered to be in the category of savings, rather than investments, they are the first step to financial planning and well worth mentioning in this post. If you qualify and/or your employer offers it, make use of it.


401K – Putting money aside in your 401K is probably the most basic and important step in financial planning. If you have a job, and your employer offers a 401K benefit, its very important that you use it. Usually the employers match a percentage of your savings, and it’s a great way to save some pre-tax (before paying taxes) money.

• You can use this money after you reach a certain age. You pay taxes on your 401K when you withdraw it. Remember, there are ways to reduce your taxes at the time of withdrawal, just make sure you do your research.
•  Having a 401K in itself is not an investment. It is merely an account that you put your pre-tax money in. This money is invested in a portfolio of your choice- usually mutual funds.

IRA (Individual Retirement Account)- Some people call it savings, whereas other think its investment. Either way, its putting aside your post-tax money in an account, which is invested in a portfolio of your choice. Again, like 401K, this is a good financial strategy, and if you can, max it out. You could put your money in traditional or Roth IRA.


Portfolio investment – These are the shares, bonds, mutual funds, that you can buy and are usually controlled for you, by financial managers or asset managers. In the case of mutual funds, your money is invested in a group of stock or bonds, and you get to pick a group, and not individual companies. As a result, you have very little say in where your money is invested- which is what also makes it easiest to manage.

• If this is how you would like to invest your money, that is fine, but remember, you are at the mercy of the market or the asset managers.
• Something else to keep in mind, always diversify your portfolio, never put all your money in one company’s stock, even if you work there and have utmost confidence. Safeguard yourself from becoming another Enron victim.

Real Estate – When you invest in any type of real estate, whether it is land, ranch, commercial or residential property, it is termed as real estate. I won’t elaborate too much here, since you will get a lot of information on this type of investment in this blog. For a short summary, refer to my first post "Why Real Estate".


REIT – A Real Estate Investment Trust is hybrid between traditional real estate and paper assets like stock. It’s a security that sells like stock on the stock exchange, but all investors money is invested directly in income-producing real estate property (such as residential apartments, offices complexes and/or commercial developments) or in property mortgages or mortgage-backed securities. This is a growing investment and provides several tax benefits for the REITs.


There are some good websites if you want to learn more on investments, a specific type of investment, or economy in general. Do check out http://money.cnn.com, http://online.wsj.com (paid site), http://www.businessweek.com, http://www.investopedia.com.