Hi, my name is Mei Carmer, and I am an Associate Financial Advisor here at Katterhenry Investment Group of NEST Capital. In case you missed our Finance 101 seminars, you’re in luck. Welcome to episode 6 of our 8 episode video series highlighting the various topics we discussed. In this video, we will begin our discussion on investing.

We will discuss what investing is and different types of investing. So what is investing? Investing is putting your money into something hoping that you’ll see a return and that your money will grow. Popular types of investments include equities, fixed income, real estate, venture capital, and starting a business. For the sake of this video, we will just be talking about equities and fixed income.

First, equities. What is equity?  Equity is investing in a company and represents ownership. The share price is the value you are entitled to if you sold your portion or if the company liquidated everything and paid off all their debts. You don’t own a physical item in the company; it’s a representation of value. Why would you want to invest in equities? You’re hoping the shares will go up in value or pay out dividends, which is a percentage of earnings. Equities also have the opportunity for long-term exponential growth that will outpace inflation. One thing to keep in mind is that you are investing in real companies who are seeking a profit. You want the companies to grow and do well so their value will grow; this will help your portfolio to grow. One type of equity is stocks. Stocks are individual shares of companies that are available to be traded, usually on a stock exchange. They may pay dividends, but it’s not guaranteed. Stocks benefit from the company’s value and can react to news about company performance and market conditions. Two other ways to gain exposure into equities are through ETFs and Mutual Funds. They are similar security products that are both baskets of individual securities, and they generally provide greater diversification than investing in a single stock or bond, amongst other securities that can back ETFs and mutual funds. ETFs is short for Exchange Traded Funds and they track and try to imitate a specific index, sector, security, etc. For example the S&P 500 or Treasuries. ETFs trade on a stock exchange like the name suggests; the price will fluctuate all day as the ETF is bought and sold. Mutual Funds are portfolios of different investments that depend on the objective of the fund, whether that be a specific amount of risk or the types of investments used. Mutual funds do not experience any price fluctuation during the day but are priced at the end of the trading day.

The other form of investments that I wanted to talk about today is fixed income. Banks, companies, even the government sometimes need money, so they borrow money and will pay investors a set amount of interest, where the term fixed income comes from, in exchange for their money. Why would you want to invest in fixed income? The return is set and outlined, so that you can know the expected returns. Fixed income is also considered safer since debt has to be paid off before equity in the instance of bankruptcy. One thing to note is due to the set return, fixed income tends to grow slower than equities and may not keep up with inflation. Fixed income includes CDs, Bonds, Treasuries, and Money Market Funds. CD is short for Certificate of Deposit. It is a savings product that earns a set amount of interest on a lump sum of money for a set amount of time. If you do choose to pull the money out early, you will be penalized. Bonds represent loans being made by an investor to the borrower. The face value is the initial amount for the bond; it’s also known as par value, and is what will be paid back along with the coupon at the end of the loan. The coupon rate is the interest rate the bond earns. The maturity date is the “end of the loan”, and is the day that the face value and coupon are paid. Bonds can be traded during the period of time between the initial purchase and their maturity date. The bond’s price will fluctuate based on the riskiness of the bond; how many days until maturity, and how the bonds coupon rate compares to the current interest rates. Treasuries are very similar to how bonds work as they are loans made by an investor to the U.S. government. Treasuries have different terms based on the length of time; T-bills mature between 4 weeks and a year, T-notes mature between 2 and 10 years, and T-Bonds mature between 20-30 years. They have bi-annual interest payments and are deemed lower risk investments since they’re backed by the government. The final fixed income product is the money market fund. It invests in high-quality, very short-term fixed income, cash, and alternatives. Money Market funds seek to generate income in the form of interest; there’s not much capital appreciation as it seeks to preserve the value of $1 per share; however, that is not guaranteed. Money market funds are intended for short term investing due to their relatively low rates of return. This has been episode 6 of our 8 episode Finance 101 Video series. Episode 7 will continue our conversation on investing.

Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can cause a bond’s price to fall. Credit risk is the risk that an issuer will default on payments of interest and/or principal. This risk is heightened in lower rated bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.

Investment products and services are offered through Wells Fargo Advisors Financial Network, LLC (WFAFN), Member SIPC. Katterhenry Investment Group of NEST Capital is a separate entity from WFAFN.