Finance

Investing for Beginners: How to Make Your Money Work for You

A lot of people are oblivious to what investing for beginners entails and what it’s all about. Some of the most common questions people ask include, what is investing, how to invest money, and how to choose the right stocks.

There are also those who mistakenly believe that you need a lot of money to invest, but this is far from the truth. These days, there are different investing apps for beginners, which have made this business accessible to just about anyone.

That said, before you dive into it, it is important to understand the basics to minimize risks. Here are some of the things every beginner should know about investing.

What Is Investing?

The term “investing” simply refers to purchasing or acquiring an asset that would, in turn, fulfill its purpose by creating income. This asset is known as an “investment.” There are various forms of assets available, ranging from money, time, and effort, among others.

These assets fluctuate in value. If you are lucky enough to have made a wise choice, you might see your assets grow to double or triple their original value. Once they reach that point, you can choose to sell them for a profit or wait until their value grows further.

An example of this is when you purchase a piece of land. Since land is a very tangible asset, it appreciates over time. You can also choose to develop it, leading to a further increase in value. By the time you sell it, you will earn a profit on top of the amount you initially purchased it for.

Why Should You Learn Investing For Beginners?

It is easy for people to feel intimidated when they hear or come across the word “investing”. However, you don’t need high-paying finance jobs or even a finance degree to get started with making an investment. After all, you can seek the services of a financial advisor who will show you the ropes and set everything up.

What you do need to understand is that profits are never guaranteed when you invest. While investing allows you to increase your wealth, there are some risks involved. Nonetheless, if you want to make your money “work” for you, investing is a great way to get started.

Here are some reasons why even basic investments for beginners are important.

1. For Retirement.

Investing in the stock market, real estate investment, gold investment, and other businesses create a source of income during your retirement period. As you keep saving before retirement and keep investing even a little part of these savings into various investments, you can rest assured that you’ll receive returns by the time you retire.

2. To Help Achieve Your Financial Goals.

Learning how to save money is just one of the steps to achieving your financial goals. Through investment, you can grow any extra money that you have saved without working. Keeping your money in the bank may earn you a few dollars in interest rates, but investing in profitable assets can easily double what you already have. To achieve this, you will have to practice smart investing for beginners.

3. For Use as an Emergency Fund.

Life can be unpredictable and you wouldn’t want to be caught off-guard financially. Aside from your fixed income, you should have money set aside for emergencies. Investing can help create an extra income stream that you can use for this purpose.

4. To Keep the Economy Moving.

Once you invest in a business, the size of that business increases. As the size of the business increases, there is always a need for more manpower, which creates more job opportunities for society. Hence, investments also play a big part in helping your local economy thrive.

Investing for Beginners

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We have established that there are risks involved when investing. There are huge gains to be made, but there is also the possibility of losses. This is why proper planning and learning as much as you can is important. These can safeguard you from making the wrong moves and potentially affecting your gross income.

How to start investing safely? Take note of the following tips:

  • List down your reasons for investing, the amount you are willing to invest, how much risk you are willing to take, and how long you are willing to invest.
  • Carefully analyze the risks you are willing to take, as there can be a sudden decrease which could easily lead to great loss. This aspect of “risk-taking” should not scare you, as all businesses involve risks. However, it is only advisable to carefully analyze the risks involved to get profits out of your investments.
  • Consult with a financial advisor for advice regarding various investments. They will provide you with information on the best stocks to purchase, which markets are most profitable, and how much money to invest.
  • Once you invest, do not stop there. Keep reinvesting your profits while bearing the tolerable risks in mind. By doing this, you can avoid risking your fixed income since you’ll only be using money that you are prepared to lose.

Kinds of Investments

Various kinds of investments have different levels of risk and different advantages. Since investors need to assess and take note of the risks they are willing to undertake, there is a need to study various kinds of investments. There are two major kinds of investments:

  • Growth Investments: These are long-term investments with a high amount of possible risks. They deliver higher returns and are suitable for investors who are willing to invest for a long period of time. The most common kinds of growth investments are properties and shares.
  • Defensive Investments: These investments generate continuous income. They involve lower risks, and the most common kinds of defensive investments are fixed interest and cash investments.

Diversification

Sudden rises and falls in various markets or sectors are inevitable. These sudden rises usually lead to an increase in investors’ earnings, whereas the sudden fall may lead to great losses. Due to these fluctuations, it is very important to diversify your investments into various sectors.

Diversification can be simply explained as an act of “putting your eggs in various baskets.” For instance, instead of just investing in a portfolio stock, you can simply split the amount for investing and go into real estate and gold investments.

Regarding losses, diversifying your investments decreases the percentage of possible losses since various sectors and markets may simply not incur losses all at once.

Apart from the fact that diversification reduces the chances of incurring possible losses that might face a market, it also maximizes the profit returns from various sectors.

Long-Term and Short-Term Investments

Investments vary from long-term to short-term. It is important to understand the difference between the two to find which one fits your preferences best when it comes to investing for beginners.

Long-term investments provide returns after a very long period of investing. There are several risks involved in long-term investments, but it usually also means higher returns. Long-term investments are suitable for those who are willing to invest to achieve long-term goals. Examples of long-term investments include real estate investments and mutual funds investments.

Short-term investments usually last for about three years or less before they are converted to cash or sold. They involve lesser risks and have returns that are quite lesser than those of long-term investments. The best short-term investments include corporate and municipal bonds, short-term bond funds, Certificate of Deposits, Money Market Accounts, etc.

What is The Best Place to Invest Money in Right Now?

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These options also belong to different sectors, and they have different possible risks involved. Some investment options which provide the best return on investment include the following:

  • Yield Stocks
  • Real Estate Investment
  • Gold Investment
  • Bonds
  • High-Yield Savings Accounts
  • Certificate of Deposits
  • Money Market Accounts
  • Treasury Securities
  • Annuity

Let’s look at them in detail:

1. Yield Stocks

Stocks refer to ownerships in various sectors. Yield stocks or dividend stocks involve paying shareholders of companies a part of their earnings. This investment provides continuous returns, despite the various fluctuations in the market. It is suitable for those willing to invest in long-term investments and those who desire passive earnings. Yield stocks are also a great introduction to investing for beginners with little money.

However, some risks are involved in this investment. The entire investment of stocks owned in a particular company solely depends on how productive the company becomes. As such, it is important to seek the advice of experts. They would be able to advise you on how to buy stocks, the best stocks to invest in, and prepare you for stock market swings.

2. Real Estate Investment

This involves a lot of sub-investments, including housing real estate investments, hotel real estate investments, and commercial real estate investments.

This investment is quite suitable for those who are willing to invest but do not have the time to monitor real estate projects constantly. Real estate investing for beginners is suitable for people willing to invest to get passive earnings.

Returns from this investment are usually delivered through capital appreciation and rents. Risks involved in real estate investments include the depreciation of the estate value after a period of time, the structure of the buildings, and the location of the buildings.

3. Gold Investments

As an asset gold is highly valuable and is considered by many to be the best investment. They can be used as protection against inflation and can be easily converted into cash. Gold investment can be made by buying from gold miners, companies, and via Exchange-Traded Funds (ETFs).

However, there may be risks of physical damage which can lead to the depreciation of the value of the gold.

4. Bonds

The purchase of bonds provides higher returns to the owners after a while. This is a long-term investment that provides payments based on the interest rate stated by the bond issuer. This investment is more stable than stocks.  They also provide continuous earnings.

Bonds have various risks such as the default risks incurred from the company’s financial instability. Other risks are the market risks and interest rate risks incurred by the sudden rise and fall of both the bond market and interest rate.

The various kinds of bonds include government bond funds, municipal bond funds, and short to corporate funds. For government bond funds, the government uses the funds to pay for projects and debts. The government issues these bonds as a form of security, and returns it with agreed interest. The government bond funds are suitable for new investors and those who seek a constant cash flow.

If you’re using an investing for beginners app, bonds are one of the most accessible securities you’ll be able to trade.

5. High-Yield Savings Accounts

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A high-yield savings account is a type of savings account that pays around 20 to 25 times the national average when it comes to interest rates. With this kind of investment, you don’t just get interest on your savings alone but also get an increase on the interest that has also been accumulated.

These interests are derived from the loans given out by the banks. Typically, the bank loans out your savings. When these loans are repaid, they are paid with extra money (interests). From the interests the bank acquires, your savings increase with interests also.

6. Certificate of Deposits

This is an investment that produces high returns after a specified period of time. It involves very low risks but has a fixed time for withdrawing your money. It also has a fixed interest rate and is offered by commercial banks.

When investing in the Certificate of Deposits, it is very important to choose those from banks that are insured by the Federal Deposit Insurance Commission. Despite the fixed time of withdrawal, you can also withdraw your money before the agreed time, which would incur some fees.

7. Money Market Accounts

The money market accounts are a kind of savings account with a high-interest rate compared to traditional savings accounts. These accounts involve low risks as they are often insured by the Federal Deposit Insurance Commission.

They also provide more liquidity as you can easily withdraw your money or make transfers using the debit card issued to you or simply using checks. For this reason, especially during emergencies, it is one of the best investments to make money.

8. Treasury Securities

Treasury securities come from the government. They are often used to provide money for the payments of certain projects and for paying up debts. These securities have lesser risks. They are similar to Certificate of Deposits as they have a specified date of accessing this money (maturity date). This investment also has a specific interest rate.

The maturity date for this investment can be up to thirty years. The government of the United States of America provides three different kinds of this investment: the treasury bond, treasury notes, and treasury bills. The treasury bond has the highest maturity date, the treasury notes have a lesser maturity date, and the treasury bill has the lowest maturity date.

Furthermore, this investment does not allow the withdrawal of money before the specified maturity date. Because of how stable these securities are, they make the best investments for beginners.

9. Annuity

This is a contract that typically involves certain individuals and their insurance companies. It involves the payment of a substantial amount of money, with an agreement that suggests earning a continuous income starting from a stipulated time. Individuals involved are able to comfortably select the amount of money they pay and how they pay it up.

There are two main types of annuity: the immediate annuity and the deferred annuity. In the immediate annuity, the individuals involved start receiving their payments immediately after their payments. Whereas, in the deferred annuity, the indicated decides to start receiving their payments, sometime after payment.

Annuities can be of two types: fixed and variable annuities. The fixed annuities have a specified interest rate, but the variable annuities have a fluctuating interest rate.

Annuities are beneficial in various forms, as they provide a tax-deferred account for users until they are willing to start making withdrawals. However, earlier withdrawals attract tax penalties. This investment is suitable for those who have used up all their tax-deferred retirement plans.

Investing for Beginners App

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Getting started with investing doesn’t require a lot of money. Through investment apps, you’ll be able to get started with just a few dollars. There are plenty of investment apps for beginners on offer with varying features and costs. How to choose the right investment app? Here are the things you need to keep in mind.

  • Low fees. To find out which ones have the most competitive rates, try and download a few apps to compare. Make sure that while they are offering lower fees than others, the app also remains reliable and trustworthy.
  • The types of investment products available. Not every app will offer the same range of investment options. Always choose one that has most, if not all, of the products you are interested in. This will make things convenient for you as well.
  • Additional features. Does the app offer education guides or consultations with a financial advisor? These tools will come in handy, especially for novices who might find themselves overwhelmed in the beginning.

Investing apps for beginners are a great way to test how investing works without risking too much money. These online platforms have different products available, too, so you can get a feel for what works best for your trading and investment style.

Learning Investing for Beginners is a Great Asset toward Financial Stability

Investments are very important. But it is just as essential to learn investing for beginners before taking on the challenge. You’ll be able to make sound decisions if you truly understand how different investments work. Whether you decide to seek the advice of a professional or study on your own, this is one learning curve you definitely shouldn’t skip.

Do you want to start trading, but don’t know where to begin? Finding the right copy trading platform will help!