How Do I Invest Money
Annuities
Cryptocurrencies
Gold
Stocks
ETF
Real estate
Commodities
What Is Investment
An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time.
In the most straightforward sense, investing works when you buy an asset at a low price and sell it at a higher price. This kind of return on your investment is called a capital gain.
Investing is an opportunity to grow your savings so that you can achieve your financial goals
Types of investment
Learning how to invest money might seem scary, but it's easier than you think.
Everyone has a unique financial situation. The best way to invest depends on your personal preferences along with your current and future financial circumstances.
It's important to have a detailed understanding of different investment choice before you jump into it blindly.
When people think of investing, they usually start by looking at the stock market. But there are lots of other ways to invest your savings than just stocks.
The first step is learning to distinguish different types of investments and what rung each occupies on the risk ladder.
1. Stocks
Companies sell stock to raise money to fund their business operations.
When you invest in a stock, you become one of the owners of a corporation. Stocks represent ownership shares, also known as equity shares. Whether you make or lose money on a stock depends on the success or failure of the company, which type of stock you own, and what’s going on in the stock market overall and other factors.
Some stocks also pay dividends, which are small regular payments of companies’ profits.
Because there are no guaranteed returns and individual companies may go out of business, stocks come with greater risk than some other investments.
2. Exchange-Traded Funds
Exchange-traded funds, or ETFs, have become quite popular since their introduction back in the mid-1990s. ETFs are similar to mutual funds in that they hold a basket of securities, but they trade throughout the day in the same way a stock would.
ETFs contain hundreds or thousands of individual securities. Rather than trying to beat a particular index, however, ETFs generally try to copy the performance of a particular benchmark index. This passive approach to investing means your investment returns will probably never exceed average benchmark performance.
ETFs do not come with the same minimum investment requirements as mutual funds, which typically come in at a few thousand dollars. ETFs can be purchased for the cost of one share plus any fees or commissions associated with the purchase, though you can get started with even less.
3. Bonds
A bond is a loan an investor makes to a corporation, government, federal agency or other organization in exchange for interest payments over a specified term plus repayment of principal at the bond’s maturity date.
Bonds allow investors to “become the bank.” When companies and countries need to raise capital, they borrow money from investors by issuing debt, called bonds.
Because of their guaranteed, fixed rates of return, bonds are also known as fixed income investments and are generally less risky than stocks.
4. Gold
Gold is widely regarded as a tangible inflation hedge, a liquid asset, and a long-term store of value. As a result, it is often a sought-after asset class and can be a strong competitor to stocks. You can invest in gold in a variety of ways, including gold bullion, gold coins, gold mining companies, gold futures contracts and mutual funds that invest in gold.
However, if you're a small investor, it's wise to opt for direct methods of investing in gold. This usually includes buying gold bullion—coins, bars, or other physical forms of gold.
5. Real Estate Investment Trusts
Investors who are looking for ways to invest in real estate can acquire real estate by directly buying commercial or residential properties or a piece of land.
But if you lack the cash or the time for detailed research necessary to buying them outright should consider a real estate investment trust, or REIT.
REITs act like mutual funds wherein a group of investors pool their money together to purchase properties. They trade like stocks on the same exchange.
REITs are companies that use real estate to generate income for shareholders. Traditionally, they pay higher dividends than many other assets, like stocks.
6. Peer-to-Peer Lending
Peer-to-peer lending, also known as P2P lending, is a relatively new phenomenon. Online P2P services offer loans for businesses, personal use, or anything else you can imagine. If you join the pool of investors who are willing to loan money to others, then the loan can be funded by you once the borrower qualifies.
There are few P2P service provider like Prosper and Lending Club. You can contribute small amounts — as little as $25 — to fund a loan a customer is requesting and then get repaid with interest as the loan is paid back.
There is no bank involved in P2P lending. Your money is typically pooled with other investors’ money, and together you make a loan to the individual asking for funds. You'll then receive a fixed repayment each month that includes the interest you're owed.
7. Commodity Futures
Commodities refer to tangible resources such as gold, silver, copper and crude oil, as well as agricultural products like corn, grain and coffee.
Commodity futures contracts are agreements to buy or sell a specific quantity of a commodity at a specified price on a particular date in the future.
You can buy and sell contracts for future commodities, As the supply and demand for that commodity changes, so does the value of the contract, so you could make a lot of money — or lose a lot.
Commodities can be relatively high-risk investments. Futures and options investing frequently involves trading with money you borrow, amplifying your potential for losses. That’s why buying commodities is typically for more experienced investors.
Things to consider before start to invest
- Draw a personal financial roadmap
Before you make any investing decision, sit down and take an honest look at your entire financial situation -- especially if you’ve never made a financial plan before. Establish both short- and long-term goals that you want to achieve through saving and investing. Understanding your goals will help you develop a solid plan.
you should be able to gain financial security over the years and enjoy the benefits of managing your money.
- Risk tolerance
Before you start investing, you’ll want to understand your own tolerance for risk.
All investments involve some degree of risk. If you intend to purchase securities - such as stocks, bonds, or mutual funds - it's important that you understand before you invest that you could lose some or all of your money.
It make some people very uncomfortable when they decline, which can cause you to sell at the worst possible time. Knowing your risk tolerance will help you choose which investments are best suited for you.
- Consider an appropriate mix of investments.
Historically, the returns of the three major asset categories – stocks, bonds, and cash – have not moved up and down at the same time. By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can help protect against significant losses.
By investing in more than one asset category, you'll reduce the risk that you'll lose money and your portfolio's overall investment returns will have a smoother ride.
- Create and maintain an emergency fund
Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.
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The Bottom Line
Investment education is essential—as is avoiding investments that you don’t fully understand. If you’re just starting out in the investment world, make sure to consider your risk tolerance and what your financial goals are before committing money to an investment.