The independence that comes with divorce can be overwhelming, especially when dealing with your finances. You are in a strong position if you are familiar with all aspects of your family’s finances and have played a strong role in the financial decision making. If you are not familiar with your finances, this is the time to be prepared. Be involved as a partner, not a supporter, when discussing your finances. Take the lead! The advice of a financial professional can also be helpful.
Below are tips 7-10 of the investing tips and explanations series.
7. Inflation may be the biggest threat to your long-term investments.
While a stock market crash can knock the stuffing out of your stock investments, so far — knock wood — the market has always bounced back and eventually gone on to new heights.
8. U.S. Treasury bonds are as close to a sure thing as an investor can get.
The interest rate of Treasury’s is considered a risk-free rate, and the yield of every other kind of fixed-income investment is higher in proportion to how much riskier that investment is perceived to be.
9. A diversified portfolio is less risky than a portfolio that is concentrated in one or a few investments.
Diversifying lessens your risk because even if some of your holdings go down, others may go up. However, a diversified portfolio is unlikely to outperform the market by a big margin.
10. Index mutual funds often outperform actively managed funds.
In an index fund, the manager sets up his portfolio to mirror a market index, rather than actively picking which stocks to purchase. Index funds often beat the majority of competitors among actively managed funds.
Here are the explanations for investing tips 4 – 6.
4. The biggest single determiner of stock prices is earnings.
Over the short term, stock prices waver based on everything from interest rates to investor sentiment. But over the long term, earnings are what matters.
5. A bad year for bonds looks like a day at the beach for stocks.
In 1994, intermediate-term Treasury securities fell just 1.8%, and the following year they bounced back 14.4%. By comparison, in the 1973-74 crash, the Dow Jones industrial average fell 44%. It didn’t return to its old highs for more than three years or push significantly above the old highs for more than 10 years.
6. Rising interest rates are bad for bonds.
When interest rates go up, bond prices fall. Fixed interest on a new bond will pay more because rates in general go up.
Had trouble with any definitions from the list of investing tips? Here are some explanations!
1. Over the long term, stocks have historically outperformed all other investments.
Stocks have always provided the highest returns of any asset class, close to 10% over the long term. The next best performing asset class is bonds.
2. Over the short term, stocks can be hazardous to your financial health.
On Dec. 12, 1914, stocks experienced the worst one-day drop in stock market history — 24.4% . Oct. 19, 1987, the stock market lost 22.6%. More recently, the shocks have been prolonged and painful: If you had invested in a Nasdaq index fund around the time of the market’s peak in March 2000 you would have lost three-fourths of your money over the next three years. And in 2009, stocks overall lost a whopping 37%.
3. Risky investments generally pay more than safe ones (except when they fail).
Investors demand a higher rate of return for taking greater risks. The longer investors have to wait for their final payoff on the bond, the greater the chance that something will intervene to erode the investment’s value.