The traditional investment for most Americans not actively involved in the investment
industry falls into two major categories: stocks and notes. Stocks are shares of ownership in companies, and notes are debt instruments issued by a borrower. They differ in fundamental ways. Stocks can pay a dividend, and the per-share value of the stock may go up or down in price. Notes pay only interest, based upon the purchase price of the note; the interest rate may vary from investor to investor. Other investment
choices are futures, hedges, currency trading, and a plethora of derivatives of the above. The modern investor has so many choices that it becomes confusing unless a deliberate study is made to sort it all out.
Most people have neither the time nor the inclination
to sort out this menu of investment choices.
They prefer to leave the work to the self-proclaimed A mutual fund is a com-experts. For the individual with no desire or time topany formed to hold stock in analyze all these choices, this multiplicity of invest-
other companies, providing a mix
ment vehicles has given birth to yet another class of
of stocks and mutual funds that
investment called the mutual fund.
theoretically give an individual a choice between high-, medium-, There are funds that trade only certain stocks, such and low-risk investments. A REIT is as high-tech companies, single industries, foreign
a Real Estate Investment Trust, a
companies, foreign currencies, certificates of deposit,
mutual fund whose assets are real
or treasury bills; the list is endless. Suffice it to say,
estate properties or real estate–
backed, debt-based securities there is something for everyone. Someday there will
(mortgages). It is usually publicly be a fund that holds shares in other mutual funds.
owned. With the resulting management overhead and brokerage
fees, the net result is that dividends get pretty thin by the time they reach the investor.
Miraculously, there is even a type of security (a certificate of ownership issued against an equity) or mutual fund, if you will, called a REIT. This type of fund was first formed in the 1970s for the purpose of allowing the public to invest in real estate. Its shares provide the investing public with an undivided interest in a variety of large, commercial real estate projects.
Other than buying a home, American investors have always looked to the stock market
as their primary way of achieving a piece of the American dream. Their only other hope was to start a business of their own. For those who work for wages, the only viable venue for equity investment has been the stock market.