Investing is a daunting experience, even for ambitious people. This is mainly because you are risking your hard earned money. Most people are too afraid to invest and prefer saving money to earn a small interest payment.
However, it has never been easier to invest and the internet has made the investing market more accessible with more opportunities. Investments are one of the best ways to earn money while at home, doing absolutely nothing.
If you can make the right investment choices, you could earn a lot of wealth by just sitting around, playing golf, or traveling to new countries. Rich people make it sound effortless, but it there are a few things to look out for when you are getting started.
So, how can you start investing? By the end of this guide, you will understand the basics of investments and start investing in certain areas.
What Does It Mean To Invest?
You have probably dreamed about making money while you sleep so you don’t have to work as much. Most people trade their time for money while working at a job and can’t reach that goal.
However, investing is the answer to make money without spending your time. Investing is a way to leverage your money to make more money.
The book definition of investment, although dry and dull, has great depth to it:
“An investment is an asset or item acquired to generate income or appreciation.”
There are many types of investment, such as buying real estate, buying stock, or loaning money. These are some of the best ways of earning a lump sum amount of money.
These examples can have a high return on investment (ROI), if applied at the right time and you choose the right investments.
Although you could make money, it is never guaranteed that you would make a profit. It could always go sideways, which is why you should still be vigilant when planning on investing. Many investments can be risky and you could lose all of your money.
Successful investors can tell which opportunities will provide them with a high yield and which ones do not. These are not any magical powers that someone gets bestowed upon but depends on experience and analysis.
To be a successful investor, you need to analyze the risk involved in any investment. It is and will always be one of the crucial steps towards investment.
Why Should You Invest?
Who does not want to make enough money to last them until retirement or for their children? With the cost of living increasing and salaries remaining stagnant, it has become challenging for people to survive.
With the COVID-19 pandemic, it has made it even more challenging to survive, let alone purchase goods. These times have made it essential to invest because the bank’s saving interest rates are almost nothing and barely take care of the inflation. Saving a portion of your income in a bank, in other words, does not help you survive, at least in this world.
As you start investing and building experience, your potential earnings could skyrocket; in other words, they have a huge say in your life. You could live in your dream house, travel around the world, or you could face an unfortunate expense if you ever have to attend to it. Life always gets at you fast; it is just a matter of who is more well equipped.
Planning on retiring early? You can not survive on your savings, especially if you have a family dependent on you. Some jobs do require young minds, so it is possible that you could get outdated for a job. So why not invest your savings early and earn a substantial amount of money to cover your future? These types of situations usually require long term investments and are money that is 10+ years in the future.
It is necessary to keep in mind is that you should never invest in something you do not understand. These are known as impulse investments, which can be very costly as you could lose money or lose everything in the worst-case scenario.
There is a particular misconception amongst people that you must have a large sum of money to invest. That is not true; in fact, you can invest with little money without any help. Sometimes these small investments can bring back huge returns.
Types Of Investments
When talking about investments, there are two main types:
- Growth Investments: These come in the form of both long term and short term and focus on capital appreciation. It would be best if you start with this type of investment young as you will have a higher risk tolerance; hence more comfortable to deal with losses in stock markets per se. People usually invest in real estate, which is another form of growth investment and can be long term or short term.
- Defensive Investments: If you are concerned about the risk of investment and willing only to take less of a threat, this is the best strategy for you. With this type of investment, you can prevent the uncertainty in your projected funds instead secure them from unexpected turbulence in an economy, stock market, or the world. Most people tend to invest in bonds, inverse stocks, and commodities for defensive investments. Many investors convert their funds into golf and treasures, and the market for these goods is not as volatile as stock markets.
Commonly Used Terms
The investing world does seem confusing to the outside world, but it is not. It is just a bunch of fancy words people use. Here are some of them:
Stocks And Bonds:
This is something you must have heard often, “I recently bought stocks in a company.” Well, stocks mean buying a small share of ownership in a particular company. After that, the market fluctuates, prices go high, and low demand and supply keep changing.
Your job is to buy stocks at the lowest price possible and sell them are at a high price. This, in turn, helps you make a pretty large profit, for that matter. Much experience comes to play when knowing when exactly you should sell or buy individual stock. Much research goes into this.
On the contrary, a bond is a type of loan you give to a company to pay you back with interest. The difference between the two is that stockholders usually have voting write in the ownership of a company a bondholder does not.
Exchange-Traded Funds (ETF):
This is a ubiquitous term in the investment market, and it is hard to avoid it. It is a type of investment fund you could say which are traded on the stock markets. They are usually bought and sold throughout the day on stock exchanges.
They are incredibly convenient, affordable, and easily managed, and it would not be a surprise that you would soon be trading ETFs. This term is most popular in the United States.
Stock Index Funds:
These indexes measures the stock market, which helps investors compare current prices with past prices. This helps to create a market value for stocks or a group of stocks. Some well-known stock indexes track the S&P500, Nasdaq and Dow Jones Industrial Average.
Portfolio:
According to Investopedia, “a portfolio is a collection of financial investments like stocks, bonds, commodities, cash and cash equivalents including closed-end-funds and exchange-traded funds (ETF).” These can be managed by yourself or by people known as a portfolio manager.
Compound Interest:
This is a short term to reinvest the money you earned from an investment rather than using them elsewhere. We often use the money for unnecessary use, which Is why we have a budget. However, through this method, you as the investor could earn drastically higher and maybe exponentially over the years. It is the same thing as taking a bank loan where the interest rate keeps on compounding.
Strategies To Become A Smart Investor
It is not easy to become an experienced investor in a matter of days; you need to foresee things that people do not normally do. Strategies are essential for a smart investor, but the investors who hit the long run have many things in common. Before we get to that, you have to ask yourself some questions:
- Do You Have The Temperament? Needless to say, stock markets are incredibly volatile and too unpredictable, making them excessively risky. Whenever you invest, you have to set aside goals. It would help if you thought about long-term investment. This will help you when it comes to the markets’ volatility and help you get the foresight you need.
- Do You Need Someone To Oversee? Most people find it easier to hiring fund managers to oversee their accounts. The only con for this is that it comes with unnecessarily hefty fees and no guarantee. You should ask yourself if you have what it takes to let go of the fear and believe in your abilities. It is hard for many people, but all successful people have not let fear go to them. The question is, will you let fear get the better of you?
Before you become an investor, you have to ask yourself these questions. If you are willing to do all of that because it is never easy- no road is, which is why the prize is always beyond imagination.
There are certain traits you as an investor should have, and these are crucial to ensure financial success:
- You can never let your emotions get the better of you when it comes to investment. Every successful investor thinks from his brain, not his heart.
- Before you start investing, you should have a clear goal of what you want out of this. Ask yourself the question what do you want to achieve after investing? Who is it for, and why do you want to do it? I realize these are many questions, but you must ask yourself these questions to know how much you need to achieve your dream. How much you need to buy your dream house or be able to pay for your children’s children’s college tuition fees. Everyone has different priorities and goals; hence you should always list them down.
- Diversifying your portfolio is one of the best ways to mitigate losses incurred from various forms of investments. This is why you should never put in all your money for a few stocks and bonds, as it is perilous, and you could eventually lose much money if it were to go haywire at any point in time.
- Before you even think about investing in something, always do your research. Never EVER buy a stock and invest in something about which you have little to no idea. It could help you to lose all your money eventually. Investing is never about who gets there first; it must be done slowly and steadily. You cannot afford to make mistakes on your part if you want to be a successful investor. Suppose you are uncertain about something; it is best not to get into it and disregard it altogether.
- Believe it or not, emergency funds are a lifesaver. A rookie mistake investor usually makes use up all their saving, eventually losing most of it. You should never do; in fact, you should make a budget and leave yourself enough money to help you through difficult or unfortunate times. Your savings should at least cover you for around three to six month’s worth of expenses after taking out money for investments. The easiest way to do this is to make a budget and calculate how much you need for the stated period. Most people end up bankrupt like this, so be smart guys.
What Is A Brokerage Account?
This is a financial account that holds bonds, stocks, funds, and other securities on behalf of you, the investor. This is the best way to pick up your stocks and manage everything, including your investments, on your own.
With the internet’s help, almost anything can be done within minutes, and so can a brokerage account. Traditionally it was required to provide a hefty deposit to buy and sell stocks and bonds via a brokerage account. However, now you can open a brokerage account with only a small deposit. M1 Finance is a great place to start investing.
What Is A Robo-advisor?
A robo-advisor is a platform that provides suggestions on what to invest in and what not to. It does most of the work for you and thoroughly tracks all your investments with no human supervision based on algorithms.
It is effortless to set up an account, and the best part is that you do not need any prior investing experience. In other words, it is a great platform to begin your investing career with less money. Some examples of Robo-advisors are Betterment, Wealthfront, Acorn, and Wealthsimple.
How To Make Quick Money To Start Investing?
To invest, you need to have some money to do so. There is various way to earn some extra income by the side, especially as your home. Below are some examples:
- Online Surveys
- Blogging
- Online Tutor
- Sell Unwanted Stuff
- YouTube Content
- Publish E-Book
- Proof Reader
- Testing Websites
For more ideas, check out this article on how to make more money from home.
Conclusion
The harsh reality is that you can not get rich overnight; it takes time and effort. You may have to go through certain hurdles to achieve your goal, but you will eventually stay true to your path and believe in yourself. These are some essential characteristics for every investor.
There are many opportunities to invest out there; you need to predict which one is profitable. It may feel hard at first but over time you will be able to grasp it, and maybe in no time, you could retire and enjoy life.
What is your plan to Invest in? What are your goals? Let us know in the comments below!
