Investments for Beginners: As a potential entrepreneur, a student or even as a mere individual, investing is a very important act you should never ignore. This is because; it plays a critical part and role in one’s financial life. It can mean the difference between living comfortably and not living comfortably in future.
At this point, you may be interested in knowing what to invest means or what is investing.
What is investing?
Investing is the act of allocating funds to an asset or committing capital to an endeavor (a business, project, real estate, etc.), with the expectation of generating an income or profit. In other words, it is putting in time or effort into something with a long-term benefit.
Some Types of Investment for Beginners (What you can Invest in)
Whether you have been investing for years or you are a new investor, it is important to understand the different types of investments. Each has different purposes, risk levels, and expected returns.
Some require more of a financial commitment but have the potential for larger returns; others require less of a commitment or have less risk, but also will have less of a return. You can actually invest in Stocks, mutual funds, real estate, crypto currency, etc.
1. Investing in Stocks
A stock is a tiny piece of ownership in a business. There two types of stock, they are: common stocks and preferred stocks.
This is generally what people are referring to when they talk about buying stocks. If you own common stock, you are part of the company’s ownership, called shareholders or stockholders.
This is just what it sounds like. It is a stock that ranks a bit higher than common stock. Preferred stockholders get their share of the profits, called dividends, before the common stockholders. If the company ends up going bankrupt, they have to pay back the preferred stockholders first.
The expected returns of this investment can vary widely depending on the type of stocks you own and how the companies you invest in do over time.
The average return you can expect is about 12% over the long term, while in a booming economy you could see returns up to 30% or higher, though these higher returns are not normal and usually regress to the mean.
The risks involved with stocks are obvious; in order for you to get a return, the company you are investing in needs to perform well. Companies who take an economic turn for the worse could end up cutting into your returns or even into your initial investment.
2. Investing in Mutual Funds
A mutual fund is a collective pool of money that gets contributed to by companies and individuals alike. The fund has a manager, whose job it is to invest the money for the investors according to the parameters and goals set up for that fund.
The expected return of this investment or an average return on a mutual fund is less than if you invested in stocks, with a 20-year return of about 4.67%. In the short term five-year market, they can do slightly better at 6.92%.
However, mutual funds have many of the same risks as stocks do; this is because you are investing in the future of a company. If the company goes under, so does your money.
There are several types of real estate or property that you can invest in. You could purchase a home or apartment building and rent it out for income.
You could also engage in ancillary real estate investment, which basically means you install vending machines, a mini-Laundromat, or other things inside of a building that someone else owns.
You can even invest in real estate online or engage in some crowdfunded real estate purchases that let you buy a piece of property without having to take on 100% of the risk.
It is important that you aware of the demands and risk. It demands generally a fairly sizable amount of money to start, and the risks are great.
The risk however is that a tenant could end up treating your property poorly, resulting in you needing to put money into repairs. They may not pay the rent, which leads to you having to evict them, pay for court costs, or other associated fees.
The expected returns vary; this is because it all depends on what you invest in, where your money comes from to purchase it, and whether your tenants or mini-business do well.
4. Investing in Crypto Currency
Crypto currency is mined by computers that are solving complex math problems. There are hundreds of crypto currencies on the market, but for most people, Bit coin is the most well-known.
You can buy these currencies through Bit coin, in which you trade dollars for Bit coins. You can hold your virtual currency online in a wallet or download it to a hardware wallet with encryption for more security. Thus, know that Bit coin is highly volatile
The expected return is that Bit coin has the potential for huge short-term returns; however, the problem is that you will need to babysit your investment pretty closely. You could make as much as 100% in a matter of weeks and could also lose your investment almost entirely.
5. Investing in A Robo-Advisor
These services manage your investments for you using computer algorithms. Due to low overhead, they charge low fees relative to human investment managers. It may interest you to know that a robo-advisor allows you to open an account with no minimum.
They are a great way for beginners to get started investing because they often require very little money and they do most of the work for you.
6. Index funds
Index funds are like mutual funds on autopilot. However, rather than employing a professional manager to build and maintain the fund’s portfolio of investments, index funds track a market index.
Since index funds take a passive approach to investing by tracking a market index rather than using professional portfolio management, they tend to carry lower expense ratios, a fee charged based on the amount you have invested than mutual funds.
Index funds can have minimum investment requirements, but some brokerage firms, including Fidelity and Charles Schwab, offer a selection of index funds with no minimum. That means you can begin investing in an index fund for less than $100.
Some Easy Ways to Start Investing With Little Money
Enroll in your employer’s retirement plan.
Put your money in low-initial-investment mutual funds.
Play it safe with Treasury securities.
Make your first steps in real estate market.
Try the cookie jar approach.
In a Nutshell
From the above therefore, as a beginner, you have a lot of information to aid you and choices to choose from when going into investing.