Investment and Finance

I believe adequate insurance coverage is a key part of a good financial foundation. That said, you should also check with several advisors on how to get sufficient coverage at the lowest cost. Figure in your long-term objectives. For example an inexpensive 20-year level term life insurance policy might be a much wiser choice than an expensive whole life policy.

Over the long-term, a diversified portfolio should outperform a portfolio which is too narrowly spread. Each type of investment performs differently within the same business cycle. Some investments in the mix might do very well and make up for the ones which do not. If you were invested in just one sector and it performed poorly, then your entire portfolio suffers.

Some reasons are greed, impatience, lack of goals, and unsuitable investment strategies which are overly leveraged. Other reasons include out of date publications or relying on out of step experts, as well as failure to understand or take risks.

Usually the late saver never catches up, even if he earns more income and saves more later. The benefits of compounding significantly helps the early saver.

Junk bonds are high yield corporate bonds. Some corporations, often new companies, do not have established credit history and a proven track record of consistent profits available to pay off loan principal and interest. As a result, when raising capital through bond offerings, the companies must pay a higher rate of interest to compensate the investors for the additional risks (e.g. default, late payment, inadequate collateral, etc.). Mutual funds that specialize in junk bonds can be suitable investments for investors seeking high income and are able to tolerate the associated risks. Often the higher interest rate earnings more than offset the portion of defaulted loans. However, seek out mutual funds that are the best performers and the least risky. Most investors should avoid junk bonds of issuers who are highly leveraged.

REIT stands for Real Estate Investment Trust, which is a publicly traded closed-end investment company that invests in a managed, diversified portfolio of real estate or real estate mortgages. The income is tax-free to the trust as long as it meets certain requirements. Like mutual funds, REITs are conduits through which earnings pass to shareholders. REITs are readily sold on the New York and American stock exchanges and thus are much more marketable than other types of real estate investments. REITs offer a good way to invest in real estate, but the investor and or his advisor should carefully screen for performance, stability, fees, costs and outlook.

SIPC stands for Securities Investments Protection Corporation and insures each account up to $500,000 for stocks and funds and $100,000 for cash. Many brokerage firms carry additional insurance.

Price Earnings Ratio is the price of the stock divided by the earnings (usually projected) per share.

You get the ratio by dividing the number 1 by the Standard and Poors' 500 Index dividend yield. The higher the ratio, the higher is the risk.