Investing

Investing for Beginners | Read Before you Invest to Lessen your Chances of Losing Money

You’re worried about the potential financial loss when you get into investing. But at the same time, you’re aware that saving alone won’t be enough to survive your retirement. By increasing your income and outpacing inflation, you can take control of your finances and increase your chances of securing your future.

Investments are among the best ways to achieve this. Building wealth in this evolving economy is crucial to achieving your goals and progressing to the next level of success. For all the newbie investors reading, it’s time to improve your spending power, whatever your current age is. Let your money work for you with the help of this guide.

What is investing?

An investment is a purchase made with the goal of generating income or capital growth. When a person buys something as an investment, they don’t intend to utilize it right away; instead, they plan to sell it when the value is above the price it was originally bought for. By making smart financial decisions on investments, you can enhance your net worth and grow in value. The ideal strategy to invest your money depends on your age, income, and risk tolerance.

How does investing work?

The stock market is where exchanges are done between publicly held companies and investors. Shares are legally bought and sold in this market. Companies are able to raise funds for their operations, and at the same time, investors and traders are able to exchange their money for a company’s shares.

Making and losing money are both possible when investing. The value of a company may go up dramatically, slide down, or go bankrupt. The price of shares could cause gains or losses for an investor.

How do I start investing?

Factors to consider before investing

Consider what your risk tolerance through your age, income, and the number of years left from retirement. Determine what your emotions would be if you lose 30% or say, $1,000 in a couple of days. Can you ride it out, or will that cause you to panic?

Depending on what your financial goals are, this would help you set the amount you are willing to put out for investing. You could be saving for a retirement, home purchase, or looking to have funds for your child’s education.

The duration of holding your investment is an important consideration, as different investment types could have varying time horizons. Longer terms would mean higher returns.

Investment types

Stocks are sold by companies in order to finance a startup or expansion. Purchasing stock entitles you to a portion of the company's ownership. Investment risks and returns can vary based on the state of the economy, the political climate, the success of the company, and other aspects of the stock market. It can be quite risky since the stock price of a company depends on its performance, so if it does poorly, the stock price will plummet, and vice versa. It’s high risk, high return.

Bonds are loans taken out by a company. When you purchase a bond, you're essentially lending money to a company or a government body. Bonds issued by a company do not grant you any ownership rights, so you won't necessarily gain from their growth, but you also won't notice as much of an impact when they’re struggling, which gives it a lower risk than stocks. However, their long-term return is lower in comparison to stocks.

Cash equivalents are short term investments that are highly liquid, meaning the investment can be easily converted to cash. As a result, an investment can only often be considered a cash equivalent if it has a short maturity of three months or less. With the cash being ready at hand, it’s a low-risk investment, although the interest rate is usually low and struggles to keep up with inflation, thus the low return.

Open an investment account

Once you’ve decided on the type of investment you’ll make, consider how much time you’re willing to spend monitoring your investments. Do you want to be hands-on or have someone else manage your investments for you? Compare the fees, minimum balance requirements, commissions, and other additional fees from each brokerage firm.

Bottom Line

It all depends on when you want to take action. A good example is Eddie’s story, where he bought Apple stocks a long time ago. He continued to save money and bought more Apple stocks when the iPod came out. Eventually, Apple launched the iPhone, and he repeated his actions by buying more stocks—all the same when the company came out with the iPad. To date, he holds seven figures' worth of Apple stock.

Dipping your feet into investing can be overwhelming at first, but with much research, guidance from experienced investors, and the right brokerage firm, you can be on your way to achieving your financial goals and thriving in this evolving economy. Continue to learn like the students at the Next Level Academy, who continue to get knowledge from a community of investors.

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Further Reading