Skip to main content
Find a Financial Representative

Investment FAQs

Having a thorough knowledge of investing is crucial if you want to increase your chances of achieving inflation-beating returns. Understanding the following topics might help you increase your investment know-how.

  1. What's the difference between saving and investing?
  2. What are some basic guidelines for investing?
  3. What are some common investor mistakes I should avoid?
  4. Why is asset allocation so important?
  5. What are the benefits of each of the three basic asset classes?
  6. How is diversification different from asset allocation?
  7. What's the difference between a total return and an annualized return?
  8. What's so dangerous about market timing?
  9. What is dollar-cost averaging?
  10. What is rebalancing and why should I do it?

  1. What's the difference between saving and investing?

    Basically, when you put money in a savings account, certificate of deposit (CD), or similar low-risk account, you expect to maintain your principal without having it grow dramatically. The interest rate on your savings is predictable — and, in some cases, fixed — so you know how much you’ll earn on the money you’ve saved.

    But what you won’t know is how much of a bite inflation will take out of your savings. So, even though you’ll probably end up with more cash in your account than the amount you deposited, your money’s buying power may be substantially reduced by inflation over time.

    Investing generally means putting your money into securities that contain some risk. When you buy stocks or bonds or contribute to a retirement account such as a 401(k) or an IRA that invests in stocks and bonds, you can’t be sure you won’t lose some — or even all — of your principal because the prices of securities fluctuate, especially in the short term.

    But, in return, investments that carry more risk also offer the potential for higher returns and earnings that outpace inflation over the long term.

  2. What are some basic guidelines for investing?

    Taking a deliberate and thorough approach to investing is the wisest course. Keep the following guidelines in mind as you make your investment decisions.

    • What’s in Your Portfolio?

      Your new selections should complement your other holdings. To avoid buying too many of the same kinds of investments and give your portfolio a broader exposure to the markets, take time to review what you currently own.

    • Why Are You Investing?

      Establish clear goals and a specific time frame for meeting each one. Thinking about your objectives can help you choose appropriate investments. Then, review your investments at least once every year to be sure their performance is on track to help you reach your goals.

    • How Much Risk Can You Take?

      Every investor is different when it comes to accepting risk. Make sure you understand the specific risks involved in each investment type and how the risks affect potential returns. Design an investing strategy that fits your risk tolerance and goals.

  3. What are some common investor mistakes I should avoid?
    • Too cautious

      Over the long term, stocks offer you the best chance for earning inflation-beating returns. While past performance is no guarantee of future performance, choosing a diversified mix that includes stocks or stock mutual funds in your portfolio may give you the best opportunity for potential growth.

    • Not diversified

      Investing in only a few companies or in a single market sector exposes your portfolio to the risk that your investments could lose value, leaving you without gains from other investments to cushion your losses. Diversifying your portfolio can help you manage your risk. That way, if one sector of the economy or one investment class is not performing well, your other investments may pick up the slack.

    • Short-term thinking

      No one is saying that you should never sell an investment, but trading investments frequently can lower your returns. In addition to paying trading costs when you buy or sell, you’ll pay taxes on your gains at your regular income-tax rate on any investments you’ve held for one year or less. Gains on investments held longer than one year are taxed at more favorable long-term capital gains rates. Gains in tax-favored retirement accounts are not immediately affected by taxes, although you may have to pay taxes at distribution, depending on the kind of retirement account you have.

    • Overreacting

      Taking your money out of the stock market — even for a short period of time — may prevent you from reaping the rewards of a market rally. By not being invested when the market begins a recovery, you could lose out on potentially significant gains.

  4. Why is asset allocation so important?

    Asset allocation means spreading your money among a variety of asset classes, which broadly include stocks, bonds, and cash. How you allocate your investments in those classes is generally recognized as the most significant factor in determining your investment returns. Each asset class has different risks and return potential and may respond differently to market conditions, such as inflation and interest rate changes.

    Take our Risk Tolerance Quiz to find an allocation that may be right for you.

  5. What are the benefits of each of the three basic asset classes?
    • Stock / Equity investments include stocks and stock mutual funds. These investments present the most risk to your principal but offer the greatest potential for higher returns.

    • Bond / Fixed Income investments include bonds and bond funds. They present less risk to your principal than stocks but generally offer lower returns.

    • Cash investments include certificates of deposit, Treasury bills, money market funds, and similar investments. They typically earn lower returns than stock or bond investments but present very little risk to your principal. Because the different asset types usually don’t move up and down at the same time or at the same rates, income and cash investments may help to cushion your losses in the event of a downturn in the stock or bond markets.

  6. How is diversification different from asset allocation?

    They are very similar in that they both reduce risk by spreading your investment dollars among different categories. Spreading your money among the different asset classes is a great start, but you need to go another step further. You also need to diversify within each of the asset classes.

    For example, you wouldn’t want all of your stock investments in the same sector – such as technology or energy. That’s because events in the markets can cause an entire sector to be influenced. If all or most of your money is in that one sector, you’re putting yourself at higher risk than with a portfolio of diversified investments.

  7. What's the difference between a total return and an annualized return?

    Both your total return and annualized return are important. The total return reflects gains and losses on your investment during the period, and it includes income from dividends and interest over a given period of time.

    Your annualized return is an average annual return that shows what your return would have been each year for the time periods shown. While past performance doesn’t guarantee future results, this number can show you if an investment achieves consistent returns over longer periods of time. Those that do are typically considered to have more value for long-term planning.

  8. What's so dangerous about market timing?

    Market timing is an investment strategy based on predicting when security prices will rise and fall and then trying to buy low and sell high. While this makes sense in theory, it’s extremely hard to execute successfully.

    Market peaks and valleys are not clearly visible until after they have passed. Few investors can repeatedly time their investment decisions to match market movements. Instead, they may rush to buy a “hot” security, only to see its price subsequently drop, or switch out of an investment whose price has plummeted, only to see it later rebound.

    Investors who flee stocks when the market dips risk missing out on a future recovery. While the goal may be simply to wait out a declining period and then get back in when the time is right, this strategy can backfire. When the market changes direction, it can happen very quickly. By the time investors realize the market is on the up swing, it may be too late to take advantage of significant gains.

    Instead of trying to time the market, a better strategy is dollar-cost averaging, which you can do through our mutual funds or by having professionals invest your money for you through a managed account.

  9. What is dollar-cost averaging?

    Instead of trying to guess what the markets are going to do, you may want to consider using an investment strategy known as dollar-cost averaging.* Dollar-cost averaging helps you take advantage of price changes. Since you invest the same amount each month, you end up buying more shares when the price is low and fewer shares when the price is high. Over time, your average cost per share is less than the average price per share.

    Dollar-cost averaging won’t completely protect your portfolio from a loss if the market takes a plunge, but it may help reduce losses and leave you in a good position to benefit from a recovery since you’ll still be fully invested.

    You can put dollar-cost-averaging to work in an IRA, mutual funds, or a managed investment account at COUNTRY Financial.

  10. What is rebalancing and why should I do it?

    Over time, the assets in your portfolio will perform differently and that can cause your original asset allocation to become misaligned. This is common because of the ups and downs of the markets.

    Rebalancing, then, is bringing your portfolio back in line with your original asset allocation. Since you select an asset allocation to match your tolerance for investment risk, you need to rebalance to ensure that you’re not exposing yourself to more risk than you want. You should rebalance at least annually.

    With our managed account services, you’ll get automatic rebalancing of investments.


Contact Us
May lose value
No bank guarantee

Investment management, retirement, trust and planning services provided by COUNTRY Trust Bank®. Please see our Terms and Conditions for more information about COUNTRY Trust Bank® and its affiliates.

*Investing regular amounts steadily over time (dollar-cost averaging) may lower your average per-share cost, but this investment method will not guarantee a profit or protect you from a loss in declining markets. Effectiveness requires continuous investment, regardless of fluctuating prices. You should consider your ability to continue buying through periods of low prices.