A Beginner’s Guide to Financial Investments
If you’ve just decided to begin your investment journey and do not know the basics, then stick till the end because we have jotted down some points that will get you started with the money you wish to manage.
Before you begin investing your money, you have to take some time out to understand the market and the key terms and concepts.
There are various reasons as to why a person should invest money, and it merely depends on personal purposes. However, one common reason to invest money is to gain wealth. According to certain studies, the stock market returns 9% every year. For example, if you invest $10,000 at a particular return rate for 40 years, then by the end of 40 years you have $315,000. Hence, it can help you gain wealth and achieve your financial goals in the long run.
Beginners often wonder, how much to invest and there is no cut out the answer or this question. It solely depends on your goals and what you want to achieve by the end of x years. However, we can suggest you choose a plan that involves the investment of at least 10% of your income. The sooner, the better.
Different types of investments
There are thousands of aspects and fields you can invest in, from stocks to collectable coins and many more. We’re going to concentrate only on the one in your retirement plan or the brokerage account
- Stocks: It is also known as equity as it is the particular ownership of a company. If the company does well, then the stocks will increase, and the investment is usually made in the stock market.
- Bonds: They’re called the fixed-income investments, which creates a stream of income. The advantage is that they’re more stable than the stocks but offer a lesser return potential.
- Cash: It includes investment in the money markets and the savings account. Despite having the lowest risk, they also offer the lowest potential.
- Mutual Funds and Exchange Traded Funds (ETF’s): It is a type of investment where the money is pooled from a various assortment of stocks and bonds and make up the index.
Active v/s passive investment
There are two types of investing methods- active and passive investments
Active: Active investments are the ones that are made on mutual funds or picking individual stocks or bonds, that are mainly managed by professionals.
Passive: Passive investing is one to match the performance of the market by tracking it through the indexes.
Choosing one of the investing techniques depends on the time you want to spend on investing. If you’re going to do it for a longer run, then active is the one to go. Otherwise, you can choose passive investing methods.
The process to get started.
- Once you’re theoretically familiar with the procedures and basics, set a game-plan.
- Open a brokerage account and work on putting your plan to action.
- As a beginner, it is essential to choose a brokerage that offers access to investment and all the educational features.