Wealth Planning - Investments: The Basics
Investments: The Basics of Investing

 All investments can be classified into two broad categories – fixed investments or variable investments.  The terms “fixed” and “variable” refer both to the principal amount of your investment and to the return you earn on that principal. In a fixed-rate investment, your principal is guaranteed and will not fluctuate in value. In a variable rate investment, your principal amount may fluctuate up or down.  Additionally, the return you receive on your investment may also be fixed or variable.  In a fixed-rate investment you know before you invest exactly what the return on your investment will be, whereas with a variable-rate investment, your return is unknown.

  Fixed Variable
Principal Guaranteed Fluctuates
Return Known, typically low Unknown, potentially higher
Examples CD's, Savings, Etc.

Stocks, Bonds, Mutual Funds, etc.

When to use? Short-term, low-risk tolerance, need to keep money safe longer-term, won't use the money for several years, seeking higher returns and willing to accept fluctuations.

Why would someone invest in a variable rate investment?

 While the advantage of fixed-rate investments is that they have lots of guarantees and are therefore considered “safe” in regards to your principal, the disadvantage is that they typically pay a lower interest rate and are therefore subject to purchasing power risk – the risk that your money won’t buy as much in the future as it does today.  Conversely, while variable-rate investments carry risk to both your principal and earnings, they provide the potential for higher returns and therefore the potential to keep pace with inflation and taxes which will help you maintain your lifestyle in the future.

Are all variable rate investments risky?

 Many people view investment risk as all or nothing – it’s either full of risk or has no risk.  The reality is that variable-rate investments are available with varying degrees of risk – some very low and certainly some that are very high.  It is often helpful to imagine the investment world as a linear spectrum. Fixed-rate investments basically anchor the left side of the investment risk spectrum. As you progress to the right the different types of investments continue to increase with greater degrees of principal risk.

Investment Spectrum

 

To learn more about the basics of investing call (805) 988-2151 ext. 5710 or complete the form on this page to schedule an appointment with one of our advisors.

The information presented here is for educational purposes only and should not be considered financial, tax or investment advice. Please consult a qualified professional.


Non-deposit investment advisory products and services are offered through CuVantis Wealth Planning, LLC, (“CuVantis”), a California Registered Investment Advisor. Credit Unions have contracted with CuVantis to make non-deposit investment advisory products and services available to credit union members.  Investments offered through CuVantis are not federally insured, are not guarantees or obligations of the credit unions, and may involve investment risk including possible loss of principal.  Investment Representatives are registered as Investment Adviser Representatives of CuVantis. Advisory services are only offered to clients or prospective clients where CuVantis and its representatives are properly licensed or exempt from licensure.

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