Archive for May 29th, 2009

“SMC Diksha”

Q. What is saving?

In common usage, saving generally means putting money aside. For example, by way of putting money in the bank or investing in some avenue. Thus it is that part of the disposable income which is not spent on current consumption; i.e disposable income less consumption.

Q. Why does one save at all?

One need to save because when he does so he is putting something of his into something else in order to achieve something greater. In simple words he needs to save because the money he saves  can be used for investment. When one invest his/her savings in a stock, bond, mutual fund or real estate he/she does so because he/she thinks its value will appreciate over time.

Q. What is an Investment?

Investing money is putting that money into some form of “security” – an oft quoted word for anything that is “secured” by some assets.  Stocks, bonds, mutual funds, certificates of deposit – all of these are types of securities.  As with anything else, there are many different approaches to investing.

For the purposes of this explanation, there are three basic styles of investing: conservative, moderate, and aggressive.

In brief, a conservative investor wants to protect principal and earn income; a moderate investor is willing to take a certain amount of risk to achieve some stock price appreciation as well as current income; and an aggressive investor is primarily concerned with high overall returns even though it means taking more risk.

Q. What are the different modes of Investment?

There are three basic types of investments, also known as asset classes, all of which we are going to discuss. These investments are stocks, bonds and cash.

You can buy stocks and bonds as individual investments, or you can invest in them by buying mutual funds that own stocks, bonds or a combination of the two.

If you invest in cash, you can put money into bank accounts and money market mutual funds or you can buy what are known as cash equivalents:  Treasury bills, Certificates of Deposit and similar investments.

While you may not think of bank accounts as investments because they currently pay an abysmally low rate of interest.

On the other hand, stocks and stock mutual funds have been the most profitable investments over time.