Financial Institutions

¶ … Financial Markets & Institutions," author Dr. Marlanda English outlines the sectors of the financial services industry from the perspective of what you need to know in order to invest wisely. English begins by first identifying the primary sectors according to the Bureau of Labor Statistics, in addition to three primary activities of the financial services industry as a whole. The primary sectors of the industry include banking, insurance, real estate, and securities and commodities trading.

The primary activities of the industry include: "Raising funds by taking deposits and/or issuing securities and, in the process, incurring liabilities. Pooling of risk by underwriting insurance and annuities. Providing specialized services, facilitating or supporting financial intermediation, insurance, and employee benefit programs." (English 2008) English then goes on to identify ten categories of knowledge required to invest wisely, in support of the thesis that "Participation in financial markets and working with financial institutions requires understanding of how they work and the process of investing" (English 2008).

The ten categories, as first identified by M.M. Groz in "Forbes guide to the markets: becoming a savvy investor" include: 1. Products 2. Players 3. Procedures 4. Rules 5. Regulators 6. Risk and Performance 7. Resources 8. Costs 9. Scams 10. Jargon According to English, knowing the language or "jargon" of the financial services industry is particularly important, as without a firm understanding of the language, understanding of the nine preceding categories is likely to be limited.

English goes on to provide a brief description of each category and several reasons for the importance of becoming educated in that particular category. She ends with a discussion of the impact of the financial services industry, to include the political impact, as well as the many opportunities for employment the financial services industry provides. Knowledge of how the industry works and the process of investing, however, is imperative even for the casual investor looking to make a buck. After identifying the two major trading fields in the U.S.

-- the New York Stock Exchange and the NASDAQ -- English explains the differences in products and processes of each. For example, while the New York Stock Exchange handles the stocks of several varieties of companies -- from fuel and energy providing companies such as Exxon Mobile and General Electric, to communications companies such as IBM and Verizon -- the NASDAQ handles stock specific to large technology companies such as Microsoft and Intel.

Regardless of the kind of stock, however, each trading field relies on a group of investment "specialists" highly knowledgeable in their field, such as brokers, money managers and financial advisors. The result is a working pool of knowledge designed to help individual investors invest wisely. Another source of knowledge is what Groz and English refer to as "financial information supermarkets" (English 2008).

These supermarkets are comprised of informational giants such as Yahoo, Google, and InvestTools.com, in addition to financial magazines and investor publications designed to educate investors on every level of investing. According to English, "The interested investor may want to become an avid reader of these to become familiar with the language and to follow the activity" (English 2008). In further support of her call for investors to become educated, English cites D.

Kansas's four considerations of savvy investors, to include valuation, strategy, diversification, and what Kansas refers to as an "appetite for risk" (English 2008). While valuation is the consideration of a stock's value based on "the underlying company's assets, earnings, history and projected market value," strategy is the investor's approach to achieving investment goals, and diversification is the act of "dividing investments among securities with different risk and reward to minimize extensive and untenable risk" (English 2008).

Meanwhile, Kansa's "appetite for risk" represents the degree of risk an investor is comfortable with on a short- and long-term basis as based on the three preceding considerations. Nonetheless, it is possible to overthink an investment opportunity due to an overload of information and/or advice from investment professionals.

After identifying the major "players" of the financial services industry -- to include brokers, money managers, financial planners and information providers -- English warns against the dangers of becoming involved with multiple-role players, as these players might attempt to take advantage of an investor by sharing that investor's personal information with another sector of the industry. For this reason, "Investors should read privacy statements from companies and act decisively to ensure that information is not shared without their consent and to minimize additional sales prospecting that is unwanted" (English 2008).

Along this same line, it is possible for investors to become "paralyzed" by having too information or too many investment options. In order to.