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Introduction to Financial MarketsYou have to be rich to start investing is not true. You don't have to be rich to start investing. Most investors do not start out rich. The pupose of saving and investing is to get rich. You can start out investing with sums of money as small as $25 or $50 a month. The markets play a very important role in your everyday life. How high gasoline will be? How high the interest rate will be on your loans or credit cards? Will jobs go to other countries because of cheap labor? All of these things are determined by the financial markets. So, even if you are not going to be an active investor, you still need to understand the financial. Investors run risk the of losing their money when they invest, but they stand to gain a return-more money-if the investment is profitable. The rule of thumb of the investing world is as follows: The bigger the risk, the bigger the potential payoff. Risk tolerance is how much risk an individual can afford to take-each person's ability to ride out the ups and downs of the market and the potential of losing what they have invested. Risk tolerances vary from person to person and at different stages in the life cycle. Young adults who invest can withstand market fluctuations to see their investments increase in value over the years and can afford to take greater investment risks than people who are approaching retirement. People who can't afford to lose the principal of their investment should select savings and investments with less risk. On the other hand, investments that guarantee the safety of principal may not maintain purchasing power in times of high inflation. Markets are the meeting place where buyers and sellers come together and determine prices. A Financial market is a place where firms and individuals enter into contracts to buy or sell a specific product such as stock, bond, or futures contract. Buyers seek to buy at the lowest possible price and sellers seek to sell at the highest possible price. The market for stocks and other financial securities is similar in concept to a farmer's market where growers display their produce for consumers to buy. Financial markets are where money and people come together with the vibrant energy of free enterprise.
Stock is an investment product that represents partial ownership of a company or corporation. The stock market represents all the companies that sell their shares to the public. It is the primary place for companies to obtain financing for their operations and for investors to profit on the growth of those companies. There is therefore a close relationship between the stock market and the economy as a whole. When investors buy bonds , it means they have loaned money to a company or government entity. In return, that company or governmental entity promises to repay the amount borrowed plus interes. Corporate bonds are issued by publicly-owned companies, while municipal bonds are issued by state or local governments. A mutual fund invests the pooled money of its shareholders in various types of investments. The fund manager buys and sells securities for the fund's shareholders. Mutual funds are not risk free. Their values rise and fall along with the securities in the fund. The shares in a mutual fund are priced by dividing the current market value of investments owned by the mutual fund by the number of mutual fund shares. As the value of the securities in the fund goes up or down, the value of each share changes accordingly. The relationship between a business and a consumer is this: If a business has something the consumer wants and the consumer has the money to buy it, a sale will be generated and the business will profit from that sale. The leading economic indicators reported on the news are nothing more than measurements of the buying and selling activities of companies and the spending or saving activities of individuals on a national or international scale. The government plays an important role in the licensing and registration of investment professionals and the financial products they sell. With all this regulation, however, it is still the investor's responsibility to make wise choices about the professionals with whom they work and the products in which they invest. Always heed the advice caveat emptor , which means "let the buyer beware." Understanding the basics of state, federal, and industry oversight will help you know the extent and limits of consumer protection by these entities. The financial markets are very important to you whether you are or become an active investor. It is important that you understand the in and outs of the financial markets.
Risk and Return
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