Investing can be a scary word for those who aren’t investing savvy. Many people think investing means buying and selling stocks and watching the money grow like an interest-bearing bank account. However, investing doesn’t have to be that complicated, and it often gives you better returns than leaving your cash in a savings account or under your mattress! Investing is more about investing your time and interest at first, but once you do a little more research, it can be a fun way to make extra cash.
Before investing, the first thing to know is what kind of financing is right for you. There are three investing methods: investing in the stock market, investing in mutual funds, and investing in bonds. Each investing strategy comes with risk levels, potential growth/returns, and cost.
Investing in the stock market means investing your money into stocks you think will appreciate over time. When investing in the stock market, investors put their faith into a company’s product or service to sell successfully enough to get a return on their investment. When investing in mutual funds, investors pool their money with other investors and put that money into different investments that the fund manager believes will gain the group more returns than investing into a single stock or index (mutual funds can be investing in stocks, bonds, commodities, etc.).
Finally, investing in bonds is investing your money directly into debt issued by the government or a corporation. Bond investing is investing in IOUs from these companies and trading them on the open market for different interest rates (just like you can trade stocks).
Types of Stocks:
There are three main types: growth stocks, value stocks, and income stocks. Growth investing is investing in companies that you believe have a bright future and have the potential to grow exponentially. Value investing is investing in companies you think are undervalued and whose stock price should rise over time as they become more demanded by the market. Finally, income investing is investing in companies that provide dividends or a certain percentage of their profits paid yearly to shareholders. Depending on which investing you choose, you should either invest in funds or invest directly into companies.
Types of Mutual Funds:
There are two main types: aggressive growth funds and conservative income funds. Aggressive growth investing is investing into mutual funds that have a high-risk level, high return on investment potential, and the potential to lose some money if the market is wrong or if the company you invest in goes under. Conservative investing is investing in funds that have a low-risk level, lower return on investment potential, and usually make safer investments (investing in things like bonds and blue-chip stocks).
Types of Bonds:
Bonds are another form of investing and investing directly into debt issued by different companies and governments. The primary difference between investing in bonds and investing in stocks is that when investing in a bond, you’re buying an IOU from someone else saying they will give you back something of value at a predetermined time (whether it’s your money back or interest under specific terms).
When investing in a stock, you’re buying equity (ownership) of a company, so when the company does well, so do you. The main difference in investing in bonds is that investing in bonds gives you much lower returns than investing in stocks, but investing in bond funds can give you better returns than investing in a single corporate or governmental bond because of the money management involved with mutual funds.
Investing your Money
Once you’ve decided how much time and effort you want to invest, it’s time to pick what kind of financing is best for you. Again, this depends on how much risk you’re willing to take (riskier investments involve more potential reward and loss). Once you’ve picked which investing method is suitable for you, look up several companies within that method (pick at least 10) and research different websites about each company.
Then narrow down your list to 5-7 companies that you think are the best in their investing method and most likely to be successful in the future. Finally, decide what investment amount is right for you within each of these companies (the number depends on how much money you have saved up for investing).
No matter how much risk you choose to take investing, there’s always a chance that something could go wrong with one of your investments. An excellent way to ensure that all of your investments are safe is investing in mutual funds or bond funds because they invest into several different types of stocks or bonds, respectively, so if one company goes under, it won’t completely tank the fund. Also, while investing in individual stocks, stay away from investing in companies that are too high risk, have just started investing in the market, or have a bad reputation in their industry.
How to get into Stocks
When investing directly into stocks, you’re investing money into stock certificates of several different companies. When investing in individual stocks, the first step is investing in at least 10-15 other companies (the more, the merrier) within one investing method (growth, income, aggressive growth). Then research each company’s financial history and current news story to make sure they are stable and not likely to go under any time soon. Then narrow down your list of companies into three that you think are the best for investing in over the next couple of years.
Finally, pick two out of these three to support all of your money into and one to only invest a small amount of your money into (if you’re investing in growth stocks, this is usually a much safer investment because the stock price may drop, but it won’t drop as much as an aggressive growth or income stock).
How to get into Bonds
The first step when investing in bonds is directly into a corporate bond or a government bond because they are the safest. Then narrow down your list based on risk level (choosing both high yield and low yield), so you can gain more return on investment potential and increase the chance for loss if something goes wrong with that company. Then pick which individual bonds to invest in by looking at their rating (AA+ rating means that it’s the best possible rating a bond can get, rating from C- to BBB is considered “junk” rating because there’s a higher chance of default). Finally, invest in one bond from the AA+ rating and one from the BBB rating.
How to get into Funds
To invest in funds, you will need to open a mutual fund investing account (many banks have these accounts, but their minimum investment is often around $1,000, which is much more than investing in individual stocks or bonds). Once you’ve opened your mutual fund investment account, different research types of funds with other goals (aggressive growth, income, growth stock) so you can diversify you’re investing even more by investing across multiple companies within each investing plan.
Then narrow down your list based on how close that investing goal is to the goals you think are the best (again, aggressive growth funds are usually much riskier than income, etc.). Finally, invest in one fund for each investing method (aggressive growth, revenue, growth stock) to diversify your investments even more.
What about me?
I prefer to invest in all three methods (stocks, bonds, and funds) within my investing portfolio because it gives me the best chance of investing success. I like investing in individual stocks, though, because they can give you huge returns over time if you choose your companies well and stay with them through their ups and downs. On the other hand, investing in direct mutual or bond funds can decrease that return but also reduce your chances of loss, so it just depends on how much risk you’re willing to take investing.
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