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Get The Facts On
Saving and Investing

Why Some Investments
Make Money and Others Don’t

You can make money in an investment if:

• The company performs better than its competitors.


• Other investors recognize it’s a good company. So that when it comes time to sell your investment, others want to buy it.


• The company makes profits, meaning they make enough money to pay you interest for your bond, or maybe dividends on your stock.


• The people who run the business are honest, hardworking, and talented.

You can lose money if:

• The company’s competitors are better than it is.


• Consumers don’t want to buy the company’s products.


• The company’s officers fail at managing the business well, they spend too much money, and their expenses are larger than their profits.


• Other investors that you would need to sell to think the company’s stock is too expensive given its performance and future outlook.


• The people running the company are dishonest. They use your money to buy homes, clothes, and vacations, instead of using your money on the business.


• They lie about any aspect of the business: claim past or future profits that do not exist, claim it has contracts to sell its products when it doesn’t, or make up fake numbers on their finances to dupe investors.


• The brokers who sell the company’s stock manipulate the price so that it doesn’t reflect the true value of the company. After they pump up the price, these brokers dump the stock, the price falls, and investors lose their money.


• For whatever reason, you have to sell your investment when the market is down.

Mutual Funds
A Product Professionals Manage

Because it is sometimes hard for investors to become experts on various businesses—for example, what are the best steel, automobile, or telephone companies—investors often depend on professionals who are trained to investigate companies and recommend companies that are likely to succeed.

Since it takes work to pick the stocks or bonds of the companies that have the best chances to do well in the future, many investors choose to invest in mutual funds.

What is a mutual fund?

A mutual fund is a pool of money run by a professional or group of professionals. After investigating the prospects of many companies, these professionals pick the stocks or bonds of companies and put them into a fund. Investors can buy shares of the fund, and their shares rise or fall in value as the values of the stocks and bonds in the fund rise and fall.

Investors may typically pay a fee when they buy or sell their shares in the fund, and those fees in part pay the salaries and expenses of the professionals who manage the fund.

Even small fees can add up, so you need to look carefully at how much a fund costs and think about how much it will cost you over the amount of time you plan to own its shares. If two funds are similar in every way except one charges a higher fee than the other, you’ll make more money by choosing the fund with the lower cost.

Mutual funds appeal to investors because:

• You can invest with a small amount of money.
  
  
• Some mutual funds spread their investments over a large number of companies so your investment is diversified. You haven’t put all your eggs in one basket. If you have a small amount of money to invest, investing in mutual funds may be the only way you can diversify your investments.
  
  
• The professionals who run the fund choose the investments and monitor them continuously.

Do I Need an Investment Professional?

Are you the type of person who will read as much as possible about potential investments and ask questions about them? If so, maybe you don’t need investment advice. But if you’re busy with your job, your children, or other responsibilities, or feel you don’t know enough about investing on your own, then you may need professional investment advice.

Investment professionals offer a variety of services at a variety of prices. It pays to comparison shop. You can get investment advice from most financial institutions that sell investments, including brokerages, banks, mutual funds, and insurance companies. You can also hire a broker, an investment adviser, an accountant, a financial planner, or other professional to help you make investment decisions.

Some financial planners and investment advisers offer a complete financial plan, assessing every aspect of your financial life and developing a detailed strategy for meeting your financial goals. They may charge you a fee for a plan, a percentage of your assets that they manage, or receive commissions from the companies whose products you buy, or a combination of these. You should know exactly what services you are getting, how much they will cost, and how your investment professional gets paid.

In contrast to investment advisers, brokers make recommendations about specific investments like stocks, bonds, or mutual funds. While taking into account your overall financial goals, most brokers do not give you a detailed financial plan. Brokers are generally paid commissions when you buy or sell securities through them.

Brokerages vary widely in the quantity and quality of the services they provide for customers. Some have large research staffs. Others specialize in particular types of companies, for example, companies that are new and have never been in business before.

A discount brokerage charges lower fees and commissions for its services than what you’d pay at a full-service brokerage. But generally you have to research and choose investments by yourself.

A full-service brokerage generally costs more, but the higher fees and commissions pay for a broker’s investment advice based on the firm’s research.

The best way to choose an investment professional is to know what type of services you need. Once you know that, ask your friends and colleagues who they recommend. Try to get several recommendations, then arrange a face-to-face meeting. Make sure you get along. Make sure you understand each other. After all, it’s your money.

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