Five Things to Know About Investing

According to CNNMoney.com five of the most important things a new investor needs to know about investing are;

1. Stocks have historically out performed all other investments Over the long term.

From 1926 to 2005, the S&P 500 returned an average annual 10.46 percent gain. The next best performing asset class is bonds.

2. If you don't take the long view when investing in stocks, you can lose your investments.

On Oct. 19, 1987, stocks experienced the worst one-day drop in stock market history. If you sold your stocks around this time you would have had bad loses, but if you held on to them you would have gained a handsome return.

3. Earnings is the most important determiner of stock prices.

Over the short term, stock prices fluctuate based on everything from interest rates to investor sentiment to the weather. But over the long term, what matters are earnings.

4. The more risky an investment the higher the potential profit's or loses.

Investors demand a higher rate of return for taking greater risks. That's one reason that stocks, which are perceived as riskier than bonds, tend to return more. It also explains why long-term bonds pay more than short-term bonds. 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.

5. Government bonds are the safest type of investment but pay a lower rate of return.

The conventional wisdom is that the U.S. Government is unlikely ever to default on its bonds -- partly because the American economy has historically been fairly strong and partly because the government can always print more money to pay them off if need be. As a result, the interest rate of Treasuries is considered a risk-free rate, and the yield of every other kind of fixed-income investment is higher in proportion to how much more risky that investment is perceived to be. Of course, your return on Treasuries will suffer if interest rates rise, just like all other kinds of bonds.

If you were to follow these first basic rules you will be on your way to making successful investments.