How the Stock market works and how to invest

how the stock market works a beginner's guide to investment and how start stock market business and how to gain stock market knowledge improve stock market knowledge
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Investing 101 A Complete Introduction to Investing, Stock Markets & Online Trading for Beginnersw wa alll s l sttr re ee et s t su ur rv viiv vo or • i r • in nv ve es sttiing 1 ng 10 01 1 Chapter 1 Understanding Investment Choices Mark’s Tip During these sunny and he first time tiger Woods grabbed a golf club he couldn’t stormy conditions you are t hit the ball perfectly straight 300 yards and the first time Michael sure to experience the “the thrill of victory and the Jordan touched a basketball he couldn’t dunk it, so don’t think that you agony of defeat” (to borrow will be able to earn a 100% return in the first y ee fa or r. e bt iger could swing a line from the old ABC Wide World of Sports). a club, he had to learn which end of the club to hold, and how to hold it. When learning any new skill, you must begin understanding some of the The thrill of victory is buy- ing a stock and having it tools and terms involved. Without this basic knowledge, it is dic ffi ult – if double in a few weeks and not impossible – to practice your new skill properly. the agony of defeat is losing your shirt on a trade when you “knew” it was going to a s you navigate through this investing course, you will become a knowl- be a solid performer. edgeable and smarter investor. This first lesson covers the primary tools you will use to empower yourself to become more financially successful. o nce you become comfortable with these tools and understand what each can accomplish – and what they cannot – you will begin an exciting jour- ney toward financial security. a s with most journeys, you will encounter some twists, turns, and detours. With your newfound knowledge, however, you should navigate successful- ly during both sunny and pleasant periods and during stormy conditions. enjoy your trip 4chapter one • understanding investment choices 1.1 Bank and Credit Union Products so, you just got your year-end bonus of 2,000. n ow, what are you going to do with i ett ’s ? l review the obvious choices… ost financial institutions, banks, credit unions, mutual M savings banks, and savings and loan associations have a similar menu of investment products from which you may choose. Here are the most common and popular products: Saving S a ccount S e be Th net o fi f a savings account is that you can make deposits and with- drawals whenever you want, no questions asked. Plus, your deposit is protected by the full faith and credit o .sf t . go h v e eu rnment. f t i he bank ever goes belly-up, th ed e f eral d eposit n i surance c orporation ( fdic ), which is a branch of the u .s . g overnment, will guarantee your money up to 250,000 per person, per bank accounn t. d i a n 2009, the fdic has been very busy protecting the deposits for people in about 100 banks that went bankrupt from bank to bank, savings accounts are all basically the same, but you need to pay close attention to the fine print. The typical die ff rentiators are: • Interest rate • Frequency of interest (earnings) posting periods • Different minimum balance accounts that pay higher interest rates if you maintain the minimum amount on deposit • Fees for withdrawals, statements, etc. Here is a savings account interest rate table from one of th.e l s. eading u banks: BalanC e Req UIRed In TeRes T Ra Te 0 0.05% 10,000 0.25% 25,000 0.75% 5 5wall street survivor • investing 101 a s long as you are investing 250,000 or less, this is a very safe investment, but on the downside, you can see that your return is practically nothing at this time. certificate S of Depo Sit ( c Ds) You agree to deposit a specic a fi mount of money for a fixed period of time called the maturin r ty. e iturn, your financial institution agrees to pay you interest, usually higher than regular savings accounts, over this period. However, you will have limited opportunities to access these funds, so only use cd s for cash you don’t anticipate needing until ae ft cd r y m ou ar tures. should you need some or all of your monc ed y i s, y n ou can withdraw it, but you will pay a substantial penalty, oe ft n forfeiting all the interest you have earned since you purchased t cd h . e e Th re are several die ff rent terms fo cr d s: 3 months, 1 year, 2 years, 5 years, even 10 years. g enerally, the longer the term of the cd , the greater return on your money. However, there is a catch: you risk interest rates going up when you buy a longer term. When you buy a cd , you are locked into that interest rate for the life of the cd . if you take out your money before the full term, the bank will charge you a substantial penalty as we mentioned before, so you can’t j cd us t sell a and then buy a new one with a higher interest rate if you cr c d h ua rs a rent lower yield. o n the flip side, you are practically guaranteed a fixed rate of interest on your money for the complete term of t cd h . ia n a t n era of high inflation ratesc , ds are an excellent investment. e l Th ast time there were high interest rates in t .s. w he a us the 1980s, when rates of return o cdn s were in the mid-to-high teeno s w n , however, inter- est rates fo cd r s are very low: 2 percent for a onecd -ye a an r d just 3 percent for a 5-yeacd r . 6chapter one • understanding investment choices Money Market a ccount S (MMa s) e Th se accounts are designed to be a combination of the features of a classic savings account and a cd . some typical features include: • Higher interest rate than classic savings accounts • No maturity date as with a CD • A minimum balance that must be maintained (e.g., 2,500) • Limited withdrawals each month (typically up to six transactions per month) d o not confuse ban M k Ma s with the similarly named accounts oe ff red by investment firms. They are very die ff rent. bank MMas are another form of savings account and carry the federal insurance, currently up to 250,000 per depositor, which all other deposit accounts enjoy. The similarly named Mark’s Tip product oe ff red by investment houses is typically a short-term invest- If you are sitting on some ment in one or more mutual funds that may or may not generate positive cash and you know you earnings. There is also no federal insurance protecting your principal have a substantial payment or purchase coming due in (investment). a few months — like your children’s tuition, or you are When you have one of these savings accounts, you are really “loaning” planning on buying a car at your financial institution your monn r ey. e iturn, the bank or credit union year-end — go to your bank and see what your choices pays you interest for making these loa nn li sk . e m u ost loans, however, you are. Even a 1% extra return are usually guaranteed repayment; even if your institutn c ion f asa e o ilf s. i on 10,000 over 6 months is 50. Think of it as spending the bank’s failure, the free federal insurance you receive covers the loss. 5 minutes visiting the bank today and then getting a free dinner in 6 months Stock S stocks are equity investments, which means that buying even one share of a company’s stock means you are a part-owner. for example, if you own one share o pp f la e, inc. (aa Pl) stock and p aple has 100,000,000 shares that are “issued and outstanding,” then you own .000001% of the company. f i apple were then to be sold to XYZ company for 50,00,000,000 then you would receive 50 for your share. so, as a stock owner, you are really becoming a business o n w d w ner h. a a t do business people care about? That’s right, you guessed it: maximizing sales and minimizing expenses. This equals increasing prot fi s and making money Therefore, the price of a stock is generally dependent on a combi- nation of current prot fi s and expected future prot fi s of that business. 7 7wall street survivor • investing 101 When business is good and companies are making lots of money, the prices of stocks generally rise. The opposite is also true; as businesses do poorly, their stock prices decline. e p Th lace where you can buy or sell shares of stock is called a stock exchange. n t i he u .s. there are two major exchanges: the na (s od ra ig qinal- ly nasda Q, an acronym for the at nional s a sociation of ec surities e dalers automated Quotation) and th ew e n york Stock e xchange (n Yse ), famously located on Wal tl rs eet in ew Y n ork c ity. (a third, the m aerican s tock e xchange o a rMe X, was acquired b ny Yse euronext and merged in 2009.) exchanges play a key role in the financial markets. When a company raises money in a stock oe ff ring it sells shares directly to the initial investors. but when those investors no longer want to hold shares, the exchanges provide a place where buyers and sellers come together to buy and sell shares. This is called liquid . ity if you owned 1,000,000 shares of pa ple inc. (aa Pl) but you couldn’t find anybody willing to buy it, then it would really be wou rt i thf y les osu . b knew you could call your broker, who could send an order to an exchange where all of the buyers would be standing by, then you would be con- fi dent that your shares would be sold to the highest bidder. The exchanges provide this liquidity, helping to ensure that sellers get the highest price possible, and buyers get the lowest price possible. investors can make money with stocks two ways: • through the rise in price of a stock • through the dividends that companies give to shareholders c ompanies that have stable earnings and are generating more cash than is needed to fund additional growth opportunities pay out part of their reserves every three months as “dividen t i ds a d s.” i irect cash outlay per share owned. o cmpanies will actually send you checks in the mail for owning their stockr i of you prefer, larger companies will even take that cash dividend that they would normally pay you and buy you additional shares of the company. This way your 100 shares o p f pa le stock will grow over time based on the cash dividend amount and the price of the stock when the dividend is paidn . d y a es, you will end up with fractional shares. 8chapter one • understanding investment choices o ver long periods of time, stocks have proven to be a very valuable invest- ment because of their very good retuv re nr t s. o he last 100 years, stocks have gone up, on average, about 6% per ye ia vr id . e dnds add about another 1.5% per year, so in total, stocks appreciate in value: sT o Cks R Ise In Val Ue sT o Ck dIVI dends To Tal sT o Ck ReTURn 6 percent 1.5 percent 7.5 percent a s you are probably aware, the prices and values of stocks are volatile. some change dramatically and rapidly (for better or worse) while others can remain stable for long perio n dl si. k u e most bank checking and savings accounts, investments in stocks are not guaranteed b fdic y t . he Many people are afraid to start picking individual stocks, and would rather pay money managers on Wal t l rs eet to invest for thn t em. h ie u nited Mark’s Tip states, over 1.7 rt illion is invested in mutual f.unds The average dividend pay- out of the top 500 stocks is Mutual f un DS 2.0%. a mutual fund is a type of investment where the money manager takes General Electric (GE) is currently paying out 0.75 your cash and invests it as he sees fit, usually following some rough guide- per year; as of this writing, lines. For example, the Fidelity g roup has a fund that specializes in finding the stock is at 15.00 so it is paying out 5%. That’s a high dividend paying stocks, one that specializes in bank stocks, one that great return when banks specializes in u eropean stocks, etc. You simply find a fund that matches are paying out less than one percent interest your objective, you review its past performance and its management team, and then you write a check to that mutual fund. Most mutual funds are called “open-ended” funds because they will continue to take your cash, manage it for you, and issue shares to show your ownership. a ech night the mutual funds calculate the value of all of their holdings and divided that value by the number of shares they have issued, and that number is called t eh t e as n set Value or n V a . so if the fidelity bank u fnd had a value of 10.00 and your write them a check for 5,000 you would now own 500 shares of this fund. g ains, losses, and earnings are mutually shared with investors in proportion to the size of their investment. since one of the primary rules of investment is to diversify portfolios, a mutual fund can be a simple and successful way to accomplish this goal. With one investment, you might own shares of stock in many corporations. 9 9wall street survivor • investing 101 Morningstar.com is one of the top web sites to research mutual funds. some of the information they provide includes: • 1-to-5 scale fund ratings for quick performance reviews • Comparisons of mutual fund performance against relevant sectors and other funds • Listings of the top stock holdings in all mutual funds • Listings of the people who manage these funds • Data including the expense fees (i.e., overhead costs) for each fund below is a screen shot from Morningstar.com, showin id g t elh it e y f Magellan mutual fund, one of the largest in the world with over 45 billion in investments as of June, 2009. Mark’s Tip Mutual funds are a great way to start investing, but because they are so easy they also carry a cost. Mutual fund companies have to make money, of course, and they do that by taking some of the funds’ assets to cover their salaries and other expenses. These are called manage- ment fees. As noted in the Introduction, mutual fund companies have to pay salaries and marketing expenses and they always get paid FIRST before the investors/owners get paid The other negative about mutual funds is that if you 10,000 in 5 different funds, then you probably own as many as 1,000 different stocks It becomes harder to outperform the market when you own so many dif- ferent stocks. 10chapter one • understanding investment choices a s an investor, management fees are one of the key metrics you need to watch out for, because they can quickly and devilishly eat into your prot fi s over time. d o higher management fees correlate to higher returns and better performance s i ? t t a urns out, the answer is no; in fact, many studies show that higher fees actually correla p te t erf o ol r o m we an rce. Mutual funds are not traded on an open market like stocks, and their prices are calculated just once, at the end of every trading day. The price for a mutual fund is called te h t e a n sset Valu(e na V) because it is a calculation of the entire value of stocks and other assets held by the fund divided by the total number of shares outstanding: Value of stocks and other assets Mutual fund NAV = Shares outstanding since Mutual fun nd aVs are calculated just once a day, mutual funds can’t be traded several times during the day like a s n f toc ack t. , a i ctive trad- ing is generally discouraged, as most mutual funds impose penalties and redemption fees upon withdrawal. e xchange- t ra De D f un DS (etf s) at first glance e, tf s appear very similar to mutual funds, in that one invest- ment allows ownership in a group of stocks; however, there are die ff rences of which you should be awar n e. liu ke mutual fund et sf , shares can be traded whenever the host stock market is open for transactions. This ability to react quickly comes at a price, as making these trades usually incurs a broker fee; therefore, larger trades are more cost-ec ffi ient. etfs are also oe ft n tied to an index, which make them exchange-traded index funds. These etf s are a bit less diversied fi , as they concentrate their stocks on a particular asset type, region, or other recognizable index. for example, many etf s try to mirror the composition of t ta h ne ds ard & Poor ( s&P) 500, using their performance as an index (see t &P 5 he 0 s0 etf, ticker symbol Ps Y). at Wall t srees turvivor.com e, tf s are very popular; oe ft n, the top Weekly prize winners have a et n f as their “hot stock” which rocketed them to the top of the rankings page. 11 11wall street survivor • investing 101 etf s are great for winning the Weekly and Monthly pris z se bec s at W ause you can trade specic s fi ectors of the market l gr ik ic e u a lturen , e ergy or even foreign countries. Many etfs even oe ff r leverage: when the sector gains 1 percen et t f, t he can 2 or 3 percente e t s he chart below for a comparison between the n asdaq banking sector indix ex ( f - the orange line) and the direxion 3x leveraged if nancial u bll etf ( fa S – the blue line): Mark’s Tip ETFs are the rage these days as many investors are shunning mutual funds. Visit Wall Street Survivor’s ETF Center to see the most active, best-performing ETFs every day. if you had invested iX n f i in the summer of 2009, you would have done well, earning about 17% in one mont uh t i . b f you had invested in f , as you would have made a killing of over 70% That is the power of leveraged etf s. However, remember that leverage cuts both ways: up and down. 12chapter one • understanding investment choices 1.2 Bonds u nlike stocks, which are equity instruments, bonds are debt instruments. n e i e ff ct, you’re loaning the bond issuer money, which they repay with interest. hen bonds are first issued, the investor/lender typically W gives the company 1,000, upon which the company promises to pay a certain interest rate every year, called the c, a ou n pd t on r he an r te epay the 1,000 loan when the bond matures, at the matur. it fy d or ex ate ample, g eneral e lectric (ge ) could issue a 30-year bond with a 5% coupon. The investor/lender gives ge 1,000; every year the lender receives 50 from ge , and at the end of 30 years the investor/lender gets their 1,000 back. bonds die ff r from stocks in that they have a stated earnings rate and will provide a regular cash flow, in the form of the coupon payments to the bondholders. This cash flow contributes to the value and price of the bond, and aec ff ts the true yield (or earning) bo s ran td eholders receive; there are no such promises associated with common stock ownership. a e ft r a bond has been issued directly by the company, the bond then trades on the exchanges. s s aupply and demand forces take eec ff t, the price of the bond changes from its initial 1,000 face value. o n the date the ge bond was issued, a 5% return was acceptable given the risk of ge , but if interest rates go up and that 5% return becomes unacceptable, the price of the ge bond will drop below 1,000, so that the eec ff tive yield will be higher than the 5% coupon rate. c onversely, if interest rates in general go down, then that 5% ge coupon rate starts looking attractive, and investors will bid the price of the bond back up above 1,000. When a bond trades above its face value, it is said to be trading at a premi w um h;en a bond trades below its face value it is said to be trading at a disco iu f y nt o.u ever trade bonds, understanding the die ff rence between your coupon payments and the true yield is critical. 113 3wall street survivor • investing 101 e Th re are three common types of bonds available for general sale, each of which oe ff r die ff rent levels of security and projected earnings: t rea Surie S: u.s. treasury bonds carry the full faith and credit of the u .s. federal government, eliminating much of the risk associated with investments. s y a ou can imagine, in return for this minimized risk, your earnings rate will be less than more “exotic” investment choices. treasuries, particularly the 3-mo r n et ah su try bill, are sometimes quoted as the “risk-free rate of return,” the minimum rate of return an informed investor will accept for enjoying the minimum r n t is h k e r . i eal world there is no true risk-free investment, altho ru eg ah sut ries do come close. elb ow is a snapshot of the g overnment Bond page from Bloomberg.com: Mark’s Tip Bonds are not nearly as liquid as stocks and ETFs, and therefore there is not nearly as much information about them publicly and freely available. If you are going to buy bonds, always buy them from a reputable source and always check to make sure you are getting a fair price. 14chapter one • understanding investment choices You should also understand the meaning of a yield curve, as displayed on the b loomberg.com screenshot opposite. a yield curve is the relationship between the interest rate oe ff red and the time to maturity of an invest- ment. While all investments have a yield curve, many traders and econo- mists closely follow the yield curr ve e o asu f r ties of die ff rent maturities to help make other financial decisions and projections. corporate Bon DS: These bonds can be quite secure or some- times risky; their inherent value is greatly determined by the creditworthi- ness of the corporation oe ff ring them, and corporate stability can change over time. o fr example, until 2009, most bonds oe ff red by .su . automak- ers implied good levels of security. The bankruptcies of gm and c hrysler, combined with serious financial problems a or t d M f otor o cmpany, gener- ated much higher risk factors for their corporate bo ypicn ad ll s. yt , however, Mark’s Tip corporate bonds are more secure than corporate stocks. Bonds are not nearly as Municipal Bon DS: states, cities, or other local governments oe ft n liquid as stocks and ETFs, and therefore there is not issue bonds to raise money to fund services or infrastructure projects (road nearly as much information and bridge repair, sewers, purchasing open land, etc.). The primary advan- about them publicly and freely available. If you are tages to investors are security and tax benet fi s; most municipal bonds oe ff r going to buy bonds, always interest earnings that are exempt from federan a l ta dd xe it si . o in, if you buy them from a reputable source and always check to are a resident of the state in which you own one or more municipal bonds make sure you are getting issued by local governments, your earnings may also be exempt from st a f at aie r price. or local taxes e. v n er assume a high security factor, however — some local governments may be in dire financial condition and your risk factor may outweigh any tax benet fi s you enjoy. 15 15wall street survivor • investing 101 1.3 Gold & o ther Precious Metals recious metals, particularly gold and silver, are attractive P investments to many people, but as usual, assume nothing. While they can fluctuate in value as rapidly as common stocks, from a real-world perspective, gold and other precious metals oe ff r advantages that other options do not. You have five options on how to invest in metals: • Coins and bars: If you enjoy a high degree of “tangibility,” accumulating coins or gold bars should satisfy that craving. • Certificates: If you’d rather not have your spare bedroom filled with gold bars, choose certificates that indicate your ownership in specified amounts of precious metals. • Precious metal mutual funds: If you’d like to spread your risk over several Mark’s Tip precious metals, you might like this option. We all wear gold around • Purchase stock directly in mining corporations: Get right to the source of our necks and fingers, it’s your favorite precious metals if you wish; for example, Barrick Gold (ABX). used in electronics, and if you’re King Tut, you’re • Purchase precious metal futures: This is often the most “exciting” (and buried in a gold casket. risky) option as you would gamble a bit on what gold or other precious If all the gold in the world metals will be valued in the future. was melted into one big cube, it would only be 20 investing in precious metals is more challenging then trading stocks. yards wide; that means limited supply, which is With apple inc., we all know what computers, iPhones and iPods are, why the price is on a solid so at least we think we understand the com n pv a e n sy t. ii ng prudently in upward slope. Buy GLD when you think the world precious metals is much more complicated since it is simultaneously a is in chaos, but only if you global commodity, a hedge against inflation, interest rates, and “end-of- beat everyone else to it the-world” scenarios. That being said, many advisors are recommending that up to 10% of one’s portfolio should be invested in precious m t etals. a Wall t sreet u srvivor, you can trade precious metals using the following etf s: gl D (gold) and lv S (silver). This graph shows how the gld etf eec ff tively matches the spot price of gold. These etfs allow regular stock traders to trade these precious metals in a stock account, without going into the riskier futures markets. 16chapter one • understanding investment choices 1.4 Foreign Currency & Foreign stocks nvesting in foreign exchange (forex or fx), currency specula- i tion, and hedging are variations of the same basic investment strat- egy — you’re betting that one currency will strengthen or weaken against another. o nt for the faint-hearted, these investments involve more due diligence and savvy than any of the other security types we have covered so far. t rading in fX requires a strong macroeconomics background and an understanding of interest rates. investing in foreign stocks is just like investing in local stocks, except you introduce another level of r f y is o k u t . i ry to buy a foreign stock, for example, you are really making two bets at the same t irsit y meo : u m f ust convert your currency into that used by the foreign exchange, and then Mark’s Tip you use that foreign currency to buy one or more foreign stocks. You now Don’t trade FX unless you have all of the risk and return possibilities of stock ownership, but you have an MBA from one of are also investing in a foreign currency, which you hope will be prot fi able the top business schools, you have a mentor, AND when you sell your foreign stock and convert the proceeds back into your you have 1,000,000 to local currency. burn c urrency speculation and hedging, usually through he, a dg r e f e s uind mi- s lar. You invest in foreign currency believing (or hoping) that the exchange rate against the dollar becomes more favorable — and therefore prot fi - able — over time. s y a ou can imagine, you can make or lose a great deal of money in the arenas o fX f , currency speculation, and hedging. You should become very knowledgeable or employ a trusted expert to help you become a smart and successful investor in these areas. Most advisors would agree that this area is consistently one of the most exciting options for investors. 17 17wall street survivor • investing 101 1.5 Real estate uying and selling real estate as an investment strategy b is quite die ff rent from simply buying a home or commercial building. Just as important in determining fair market v (fM a Vl ) a ue s comparable properties are when buying a home, the income stream generated by a property is a primary component for an investor. You typically have three options if you want to invest in real estate: • Buy specific pieces of residential and commercial property • Invest in mutual funds focused on real estate investments or a REIT (real estate investment trust). REITs invest in properties like shopping centers and other rental properties, and therefore, generally pay off a high dividend as long as they properties they invest in stay leased. Mark’s Tip • Invest in mortgage-backed securities (MBSes) or mortgage-backed obliga- tions (MBOs) If you plan on living in a city for more than 5 years, you should buy a house. After in normal or expanding economies, real estate investing can be quite you have a house and you lucrative and relatively s n d afo e. win markets, both the potential rewards have started to grow your nest egg, buy a vacation decline and the possible risks escalate quickly. home somewhere that you want to go to for the next to invest in the er al e state market at Wa tl rl ee st u srvivor, you can trade 20 years. real e state n ivestment r tusts ( reit s), etf s like srs, or the stocks of any of Home-building company the following home-building companies: stocks are generally leading indicators; their activity • DR Horton (DHI) gives you an indication of where the economy is • Toll Brothers (TOL) heading. That said, just as you should never put all of • Lennar (LEN) your money in one stock, you should never have all • Pulte Homes Inc (PHM) of your personal wealth in • Centex Corp (CTX) the stock market, even with home-building stocks. Use REITs in your stock portfolio if you are seeking high- dividend yields, but always get out before the next recession hits. 18chapter one • understanding investment choices 1.6 Recent Performance of Investments or those just beginning, a good point of reference is the recent f performance of the common investments described above. How have they done over the last five years? These charts illustrate their performance over the same time period. When looking at the charts, keep in mind what you read earlier in the lesson and what you’ve heard about the economy in the news. for example, regarding real estate, you’ll see the price of homes has fallen from 2006 to 2009, in part owing to a bad econom s w y. e s a tated earli- er, in normal or expanding economies, real estate investing can be quite lucrative and relatively s n d afo e. win markets, both the potential rewards decline and the possible risks escalate quickly. 119 9wall street survivor • investing 101 Mark’s Tip The single most important point to consider when investing is to have clear and reasonable objectives, which includes knowing how long you are planning to invest. “Making as much as you can as fast as you can” is not a clear, reasonable objective. “Investing 500 a month and earning a 5% annual return for the next 10 years so I can put my kids thru college” is a clear and rea- sonable objective. If you are young, then you should be taking some risks because you have time working in your favor. If you are approaching retirement age, need monthly income and want to protect your nest egg, then you should consider that in your invest- ment selection. 20chapter one • understanding investment choices 1.7 Understanding Risk and Investing regardless of your choice of investment types, you should learn about and understand the correlation of risk to the size and type of your investments. first, become familiar with the traditional risk levels of various types of asset groups (stocks, bonds, real estate, etc.) and compare this data with classic expected returns in die ff rent economic climates. u se this historical information in conjunction with the projected invest- ment horizon for the future to identify your own comfort level and threat index. use all the solid expert data you can fi o n r ex d. fample, if gold values typically increase when the real estate market spirals downward, build this probability into your investment strategy. remember, there is no risk-free rate of return or investment. The key is to establish the risk, evaluate the potential return in light of this risk, and decide which investments suit your personality. Your journey into the investment world has now begu n n. joe y the ride 21 21wall street survivor • investing 101 Chapter 1 e xercise Browse through the business section of any major newspaper or online n fi ancial news site and look for stories about the die ff rent types of invest- ments: CDs, Bonds, Stocks, Mutual Funds, ETFs, Precious Metals, and Real Estate. suggested Financial n ews sites • Wall Street Survivor — www.WallStreetSurvivor.com • MSN — moneycentral.msn.com • The Motley Fool — fool.com • The Street — thestreet.com • Yahoo has two dedicated research pages in their Finance section: http://n fi ance.yahoo.com/bonds and http://finance.yahoo.com/funds • Morningstar Research — www.morningstar.com Can you recognize the die ff rent types of investments just by looking at the headlines? If not, don’t worry, we’ll go into detail about these invest- ments in the chapters that follow. 22