Posts for September 2007→
What is a “money market”?
(This post is a part of the series on Basics of Finance and Investing.)
A money market, or “cash”, is a low-risk, short-term, liquid, debt type security. Reading from left to right, the italicized words mean – the risk of losing the principal (money you paid for the security) is low, it matures typically in a year or less, you can sell it quick, and corporations (and the government) issue these securities to borrow funds. Because of the low risk and fixed returns, a money market is an example of a fixed-income security. Following are the three major types of money markets.
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What is a “security”?
(This post is a part of the series on Basics of Finance and Investing.)
Merriam-Webster Online Dictionary
defines the word security as “the state of being secure”. Then further down, “an instrument of investment in the form of a document (as a stock certificate or bond) providing evidence of its ownership”. These two definitions are not unrelated. A security is an investment instrument that is supposed to secure your financial future.
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What is a “market”?
(This post is a part of the series on Basics of Finance and Investing.)
In simple terms, a market is where buyers and sellers meet to exchange goods for money. This basic concept still works in the sophisticated world of finance, except that there are now four organizational levels depending on the nature and volume of transactions.
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Inflation bites harder on super-rich
The recent Forbes list has some of the most expensive items, whose prices have increased from last year by an average 6%, more than double the CPI (standard measure of inflation). A few of the biggest rises are:
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Finance 101 – who needs it?
How often did you wish your teenager kid were a little more careful with pocket money? Or your parents, who are about to begin their retired life? Or even yourself – maybe fewer of those costly college parties could have helped you pay off your student loan sooner?
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Leave some money in your local bank
Philip Brewer in Wise Bread suggests that we carry some cash while on the road. My own principle is to have about $20 cash in my wallet, and one credit card (no debit card). Unless I am on a major trip out of town, when I take more cash with me (but still one credit and no debit card). The credit card I use gives 5% cash back on gas purchase, and I always pay balance in full.
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Banks, Investment companies and Investment banks
(This post is a part of the series on Basics of Finance and Investing.)
You and I, as members of the household sector, want to invest our money, whereas the business sector wants to raise money to pay for real assets. Such supply and demand requirements create an atmosphere of synergistic interactions between these two sectors.
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Players in an investing environment
(This post is a part of the series on Basics of Finance and Investing.)
It helps to know the main components of a financial world, the forces they exert and the interests they represent. There are three major players: household sector, business sector and government sector.
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What is an “asset”?
(This post is a part of the series on Basics of Finance and Investing.)
Your education and bank balance – both are your assets, and more of the first can help you get more of the second. Which one of them helps the economy? Both, actually, but in very different ways.
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Why should we invest?
(This post is a part of the series on Basics of Finance and Investing.)
The short answer to this question is that we should invest to be able to shift our purchasing power from the high earning phase of our life to the low earning phase. Many of us earn more than we need to spend in our working life (note the italic – some of us spend more on our wants rather than our needs). It is the exact opposite when we retire – we spend more on our needs than we earn. Therefore, we must have adequate funds available when we retire to live out the rest of our life.
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