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The Top 10 Terms New Investors Should Know

| Think Agency

Money management is a most necessary life skill and there are 10 terms you should be familiar with before you begin a personal investment plan. Some are actual financial-world terms and others fall under the category of common sense and good advice. Every term is equally important so they are presented in alphabetical order. Read them, know them and use them as the basis of your personal investment journey.

Asset Allocation

The more risk you take opens you up to bigger potential gains or losses. A document called an Investment Policy Statement (IPS) can establish how you guide the allocation of your assets.

A successful IPS should aim to balance risk and reward by distributing assets among multiple asset groups within your portfolio. The three main asset groups - equities, fixed income and cash - have varying levels of risk and return, so each will perform differently over time.

Debt Management

Limiting, or better yet eliminating, consumer debt allows investors to have more financial flexibility. An essential foundation of a successful strategic investment program is to outline a Debt Management Plan (DMP).

The kinds of debt included in a DMP are credit cards and other unsecured debts. Secured debts, such as mortgages and car loans, student loans and tax debt cannot be included. Some non-credit card related debts that are unsecured, such as small medical or collection debts could be included in a DMP.

Emergency Fund

This one is short and sweet, but essential for success. Before you begin an investment plan you need to set up an emergency fund. That way should unexpected expenses arise, you will not have to take finds from into your investments to pay for those needs.

Financial Discipline

As with so many aspects of life, successful investing requires a commitment to self-discipline to reach your goals. The first step is to organize all your financial documents. Whether you keep them in a file folder, a cabinet, a safe or even a cardboard box, they must be kept in an organized way for easy recall.

Each month calculate how much you spent in each category. Create a balance sheet with all your income in one column and all your expenses in another. This will give you a solid grasp of where your money goes and show how you could reduce costs.

Time Frame

A major factor for determining asset allocation is to first identify which of your investments are short-, mid- or long-term. Many first-time investors are concerned about the timing of investments. Instead of being anxious about when to make an investment, concentrate more on how long you plan to keep an amount in that venture. Different investments offer varying degrees of risk and return, and each may require a different investing time frame.

Life insurance

This is a necessary investment form that protects your family from unexpected needs caused by death. Have your advisor give you information on the two most common types, Term and Whole Life.

Mutual Funds

There is money to be made by savvy investing in the stock markets. Unfortunately, most people just aren’t that savvy. Investing in mutual funds is the best way to enter the stock markets for such people. A mutual fund is staffed by experts who are highly trained in stock market investing. Ask your financial advisor for recommendations on the types of mutual funds available.

Retirement Plans

There are many possible ways to keep the gold in your golden years. An IRA or a 401k, profit sharing plan, pensions and Social Security are the most common. One or more is right for you, but having none is not right at all.


There are situations in which you want to create an investment plan for someone not presently able to manage it at this time. A trust can be a great way to give that person the money they need to get a good start in life. There are two primary types – Revocable and Irrevocable – and your financial advisor can help you choose which one is best for you.


You have worked so hard to amass your wealth. When you pass on, shouldn’t that wealth go where you want it to go? Estate continuance planning is so important and requires some deep consideration. Legacy investing may be your final investment, but it deserves as much attention as all the other forms.

Get Good Advice

Understanding these 10 terms is just the start of you investment plan. To reach the next step, retain the services of professional advisors who have advanced training in financial matters. Click here to connect with American Financial Advisors, a registered investment advisor with clients nationwide, established in 1989.


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