Investing Basics - A Complete Beginners Guide
The majority of the people we come across today say that they wish to make more money, but it seems the only way to make more money, is to actually have money in the first place, i.e. to invest.
There are various ways of investing which may vary greatly by the amount of money require, some of them you would not necessarily class as investing. If you are thinking of making more money through investing, you need to understand the basic concept of investing. In this presentation, we have a detailed discussion of what you need to know to become a successful investor.
So What Is Investing?
We can define as a way placing or laying out capital or money in an enterprise with the expectation of getting profit after a specific period of time.
In simple terms, investing is where you lay your money in numerous types of investment with the expectation to reach your financial goals at a given period of time. Taking soccer betting as an example, which I am sure your significant others are not going to buy into it when you talk about investing there, however by definition you are.
It is important to know that any kind investment has an element of risk to it which also varies with the type of investment, soccer betting, has a little more!
Research Your Investments
You really need to do research on investing before taking any steps into this otherwise the world of investing can become a very confusing one because there are so many different types of investments and individual investments to choose from. This is where your investment strategy along with your risk tolerance and investment style all come into play.
You Can Always Use a Broker
You must always seek advice from a professional financial planner especially if you are new to investing. With their help you will be able to put your investment strategy to work and your money into the correct investments that will fall into your risk tolerance bounds and your investment style as well as helping you to achieve your financial goals. Remember to have a financial goal before you think of investing.
The Concept of Compounding
As an investor, you need to get the concept of the compound. This is so vital to boost you profits to achieve your financial goal. For example, how do you turn $30,000 into a million dollars? The secret is time and the power of compounding. I believe in learning through example and therefore let me take you through this powerful concept which may help you become one of the richest people in the world.
Concept of Compounding Example
Let our example assume an interest rate of 7% per annum with interest being calculated monthly.
- $10,000 invested at 7% is worth more than $20,000 in 10 years’ time.
- In 50 years’ time, that $10,000 is worth more than $300,000.
Of course, that doesn't take into account inflation eating away at your capital but with many stocks offering a 7% yield, the capital growth could mitigate the effect of inflation and in fact beat it.
Such a mindset can be applied to every-day purchases. A $500 handbag is actually like spending $10,000 if you compare the effects of compounding monthly at 7% pa over 50 years. So should I spend the $500 or gain $10,000? It's this type of thinking a motive to put off your spending in order to grow your investment to outrageous proportions.
But I suppose what has struck me most about this example is the aim of accumulating cash seems to override everything else by comparison. I suppose you can be successful by becoming single-minded focus as much as your ability and for that you think you deserve the title of the most famous investor and the richest investor in the world.
Borrowing into this investing principle, you can use to balance it against your dreams, hopes and of course a financially secure future.
Compounding is powerful and the concept when applied can bring great grief or great fortune.
Types of Investment
1. Ownership Investments - This is what comes to the mind of most people when they think of investing. The following are best examples.
-Precious objects and collectables.
2. Lending Investments - This type of investment allows you to be the bank. Example.
-Your savings account
3. Cash Equivalent - Involves putting cash into goods. Example.
-Money market funds
Building Your Portfolio Slowly but Surely
Don't fall into the trap of thinking that you must start big to earn big. You can still start low. It may be small certificates of deposits for starters, just as long as it can earn the highest interest. The interests earned can then be invested in more certificates of deposits or even certificates of stocks. With each earning, you can roll it to other investments or use it to grow one particular investment.
As can be implied, the important thing is that you stay in the investments market. Yes, you will go through "down periods" that can make the "up periods" appear in vain but that's just how the market works. However, if you stay in the market, you will be able to make a respectable amount of money than if you had given up the market for good.
Remember the adage about not putting all your eggs in one basket? This is applicable to investments, too. No matter how small your investment capital is, it pays to diversify them into many types instead of risking everything in one kind. Plus, remember that with high-rewards investments, the risks are equally high. You can either win or lose in these investments.
It should be alright if you win but what if you lose? However, you must not diversify so widely that you cannot keep track of your investments either. You must stay on top of your investments, which is possible when you know what is happening with each one. In other words, don't spread yourself and your investments too thin.
Investing Basics Conclusion
As you can see from the review above, it is very possible for almost anyone to start investing. Whether you start big or with the small capital you can grow your portfolio over time.
If you are a beginner wanting to make your first steps in the investment world than you should unquestionably read our other very informative blog posts on investments. These will give you the basic knowledge and understanding you will need to start making safe investments.