Investing for Beginners
Now that you have a solid financial foundation, it’s time to explore different ways to grow your money. Investing isn’t one-size-fits-all, so understanding your options is key to building a successful portfolio.
In this lesson, you will learn:
The difference between stocks, bonds, ETFs, and mutual funds
How to diversify your portfolio to reduce risk
Why certain industries, like defense stocks (Northrop Grumman, Lockheed Martin, Raytheon, etc.), can be strong investments The role of real estate and alternative investments
How to determine which investment options align with your financial goals and risk tolerance
Core Investment Terms & Definitions
Stock
Definition: A security that represents ownership in a company.
Bond
Definition: A fixed-income investment where you lend money to a government or corporation in exchange for interest payments and repayment at maturity.
ETF (Exchange-Traded Fund)
Definition: A collection of investments (stocks, bonds, etc.) bundled into a single fund that trades like a stock.
Mutual Fund
Definition: A professionally managed investment that pools money from multiple investors to buy a diverse mix of stocks, bonds, or other assets.
Diversification
Definition: The practice of spreading investments across different asset types to reduce overall risk.
Portfolio
Definition: A collection of all your investments, including stocks, bonds, ETFs, real estate, and alternative assets.
Risk Tolerance
Definition: Your ability and willingness to handle investment losses and market fluctuations.
Dividend
Definition: A payment made by a corporation to its shareholders, typically as a portion of its profits.
Capital Appreciation
Definition: The increase in the value of an asset over time.
Real Estate Investment Trust (REIT)
Definition: A company that owns, operates, or finances income-producing real estate.
Asset Allocation
Definition: The process of dividing investments among different asset categories, such as stocks, bonds, and cash.
Alternative Investments
Definition: Investments in asset classes outside of traditional stocks, bonds, and cash, including commodities, cryptocurrency, and private equity.
Market Volatility
Definition: The degree of variation in the price of an asset or market over time.
Return on Investment (ROI)
Definition: A measure of the profitability of an investment, calculated as the gain or loss relative to the amount invested.
Defensive Stocks
Definition: Stocks of companies that are expected to be less sensitive to economic cycles, often in industries like utilities or consumer staples.
Diversifying Your Portfolio to Reduce Risk
Diversification is the practice of spreading your investments across different asset classes. The goal is to reduce risk while maintaining growth potential. Here’s how to think about it:
Strong Investment Sectors – Why Defense Stocks?
Certain industries can be strong, stable investments. Defense stocks are one such example.
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Northrop Grumman
Northrop Grumman is a major aerospace and defense company that specializes in cybersecurity, space exploration, and advanced defense technologies, with products used globally by military and government organizations.
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Lockheed Martin
Lockheed Martin is a leading defense contractor, known for its production of advanced aerospace technologies, including fighter jets, missiles, and satellite systems, serving both military and commercial markets.
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Raytheon Technologies
Raytheon Technologies is a defense and aerospace company focused on missile defense systems, radar, and cybersecurity, with strong demand from military and national security sectors.
Real Estate & Alternative Investments
Investing in real estate and alternative investments can provide diversification and income outside of traditional assets.
Real Estate – Buying property for rental income or appreciation.
Alternative Investments – These include cryptocurrencies, commodities (like gold or oil), and private equity. They can offer higher returns but also come with higher risk.
This chart compares annual return %, total portfolio allocation %, and performance over time for three major asset classes.
Annual Return (%) – The percentage increase or decrease in an investment’s value over one year, including dividends, interest, and capital gains. It measures how much money an investment earns annually.
Total Portfolio Allocation (%) – The proportion of an investor’s total portfolio dedicated to a specific asset class, expressed as a percentage. It reflects how much of an investor’s funds are allocated to stocks, bonds, real estate, or other investments.
Aligning Investments with Your Goals and Risk Tolerance
Your financial goals and risk tolerance should guide your investment choices. Ask yourself:
Take Action!
Now that you understand the different types of investments and how to build a diversified portfolio, it’s time to take action:
Open an investment account (e.g., brokerage, Roth IRA, 401(k)).
Make your first investment based on your goals and risk tolerance.
Stay consistent and continue learning to improve your investment strategy.
Great job!
Great job!
Think you’ve got the basics down? Take our Understanding Investment Options Knowledge Check to see what you’ve learned! This quick quiz isn’t about getting every answer right—it’s designed to measure impact and reinforce key concepts.