If you are just getting into the realm of investing, today we are going to be giving you tips on how to do so. What is investing? In a nutshell, it is the creation of wealth by means of committing resources in an enterprise or endeavor and hoping for a positive return. Simply put, investment is employing your money by making a financial investment to make a profit.
Many people invest for two reasons mostly:
- To create wealth quickly to spend more money later in retirement
- To protect the purchasing power of their money
An investor may bear the risk of loss of some or all of their capital invested. You do not have to invest big sums of money because over time even small amounts can accrue a decent portfolio. So this is investing 101 for beginners.
Read more on how to save your money.
Types of Investment Vehicles To Consider
1. Mutual funds
Mutual funds are a pool of money from multiple sources or individuals. From big to small-time investors with the intention of investing in company shares, stocks, real estate, and other investment assets. Financial professionals on behalf of the investors, in turn, manage the investments pooled in mutual funds.
Investing in mutual funds is hassle-free. It allows investors to buy widely and from various parts of the market without doing the legwork and the research themselves.
2. Index funds or Exchange Traded Funds
An index fund is a mutual fund or exchange-traded fund (ETF). An ETF is designed to follow predefined rules so that the fund can track a specific basket of underlying investments. These rules entail the tracking of prominent indexes like the S&P 500 or the Dow Jones Industrial Average.
The main advantage of index funds for investors is they do not require a lot of time to manage. As an investor, you do not have to spend time analyzing various stock trends or stock portfolios.
Stocks represent fractional ownership of a corporation in proportion to the total number of shares. This actually entitles the stockholder a portion of the corporation’s earnings and profits that accrue from asset liquidation. One can buy and sell stocks both on the private and secondary markets.
Stock traders are usually represented by a stockbroker who buys and sells shares of a wide range of companies on the stock exchanges on their behalf. However, stocks are considered a high-risk investment plan in that when the corporation is not doing well, the stockholder is susceptible to the losses.
The bond is an instrument of debt security. The issuer owes the holders a debt and is obliged to pay them interest at a later date, which is often termed as the maturity date. So in essence when you buy a bond, you are lending money to the bond issuer.
The interest is payable at fixed intervals namely semiannually, annually, even monthly. That is why they are called fixed time assets. Often, the bond is negotiable and the ownership of the instrument can be transferred in the secondary market. Once the transfer agents at the bank stamp the bond, it is regarded as liquid on the secondary market.
5. Real estate
This involves the purchase, ownership, management, rental, and sale of real estate for profit. It is capital intensive and cash flow dependent. Real estate is not for the faint-hearted because it is a high-risk investment undertaking.
Locating properties in which to invest can involve substantial work. Competition among investors to purchase individual properties also makes it an intensive exercise. So, it would be advisable to seek professionals in the field to assist.
How to invest
This will largely depend on how much money you want to commit to this effort. But if you have a modest amount you can still invest in most of the above investment vehicles. We would also highly recommend that you contact a financial and investment analyst or advisor to help you with your investment process.