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Financial Literacy = Healthier Investments

| April 08, 2019
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Since 2004, April has been designated as Financial Literacy Month in the U.S. to teach Americans how to establish and maintain healthy financial habits.

What better way to strengthen your financial literacy than with a light and easy-to-digest serving of investment vocabulary?

While the alphabet soup acronyms and technical terminology of “finance-speak” can be sometimes overwhelming, terms can sound more complicated than they really are.

So, grab a cup of coffee, settle in, and let’s break down a few financial terms and explore what they mean:

Options

Options are contracts based on the price of a stock—but not the stock itself. These contracts give its owner the right, but not the obligation, to buy or sell the underlying stock at an agreed price at a certain period of time.

Whew - that seems like a lot to digest. But, an option is basically a more volatile, higher risk version of a stock. Its value comes more from its volatility than its stock price, making this asset type significantly riskier but prone to more return.

Exchange Traded Funds (ETFs)

An ETF is essentially a fund that is based on investments included in a stock index, such as the S&P 500 or the NASDAQ-100 Technology Sector index, that is traded on the public stock markets.

From a practical perspective, ETFs are basically market-listed mutual funds. ETFs are generally less volatile than stocks and are well-diversified with an array of different assets to decrease general market risk.

Foreign Exchange (FOREX)

FOREX is used to describe the currency market, including the American Dollar, the European Euro, the Chinese Yuan, and many more. This currency is the largest and most liquid market in the world, as it moves trillions of dollars of volume daily.

The market is comprised of exchanging currency pairs based on their conversion rates. For example, the dollar paired with the euro, or ‘against the euro,’ is presented as USD/EUR on the FOREX market. For this pair, if you purchase a ‘lot’ you are ‘betting’ that the dollar will accumulate more value as compared to the euro. Meanwhile, if you do the opposite, EUR/USD, sell/short the ‘lot,’ you are ‘betting’ that the dollar will lose value as compared to the euro, which will accumulate value.

This market, like the options market, is highly volatile and risky, but has many methods to mitigate and control its risk.

Now, that was fairly palatable, wasn’t it?

Ready to challenge your newfound knowledge and challenge yourself with our brief quiz, "Test Your Investment IQ"? Give it a go now!

And, remember, I am just a phone call away (305-751-8855) to answer any of your finance-related questions or assist you with a confusing financial issue.

Salud - here’s to your financial health!

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