Reference no: EM131051411

WHERE DID ALL MY MONEY GO?

We all hear about the importance of investing, but how do you know what the best investments are? Is there an objective source you can use to get investment advice? The answer is, yes, you can get much helpful and unbiased information from a company called Morningstar. Most people choose between stocks and bonds. When you buy stocks, you buy part ownership of a firm. You can choose from large firms like AT&T and Microsoft or smaller firms. Morningstar can help you choose from the thousands of firms available. One way to spread the risk of investing in stock is to diversify. That is, you can buy stock in a variety of firms in a variety of sectors. For example, you can buy stock in firms from other countries, in service firms, manufacturing firms, health care firms, and so on.

One easy way to diversify is to buy mutual funds. Such funds buy a whole range of stocks and then sell you a portion of that fund. ETFs, or exchange-traded funds, are much like mutual funds, but you buy and sell them through stock exchanges much like you would buy individual shares of stock. In the long run, most investment advisors recommend investing in stock. Yes, the stock market goes up and down, but they say, in the long run, stocks usually go up. Since young people can wait for years to sell their stock, investment advisors like Morningstar would usually recommend stock (or mutual funds) to them. Would Morningstar also be likely to recommend bonds?

Sure. When you buy a bond, you are actually lending a company, the government, or some government agency money. The company (or the government) promises to return the money to you, plus interest. If the interest is high enough, such an investment makes sense. Of course, some companies are riskier than others, so the interest paid on bonds varies. Morningstar will help you choose bonds that are appropriate for you and your situation. Almost everyone needs some investment advice. Morningstar has earned a reputation for being objective and helpful. This video is meant to reveal the benefits and drawbacks of investing. But stocks and bonds can earn you a nice return on your investment if you know what you are doing.

If you don't know what you are doing, you can lose your savings rather quickly. Morningstar is just one source of information. You should explore as many sources as possible to learn about investing. Such sources include your textbook, your local newspaper, magazines such as Money and Personal Finance, and TV shows featuring financial news. Everyone should have some money set aside (e.g., in a bank) for emergencies. Everyone should diversify their investments among stocks, bonds, real estate, and other investments, depending on their income and their willingness to assume risk. Morningstar and other sources of advice are very important to your financial health. You have seen how some people believed that real estate could do nothing but go up. The recent real estate crash proved them wrong. The same is true of stocks, bonds, gold, oil, and other investments. They all involve risk, and expert advice is often wrong; but in any case, it pays to have the best, unbiased advice you can get, like that from Morningstar. It also helps to have several other sources of advice, including your own knowledge, gathered carefully over time.

1. Are you confident about investing in stocks, bonds, mutual funds, ETFs, and other investments? What sources of information would you use to make a decision about investments?

2. Should you totally rely on Morningstar or any other investment advice service or should you search out several sources of advice? How can you know what advice is best?

3. Given what you've read in this text and from other sources, would you recommend that your fellow students' first investment be in stocks, bonds, mutual funds, ETFs, real estate, or some other investments? Why?