Even the richest people in the world had to start somewhere. We are not born as experts, but we all have the power and the ability to become one. The best thing about investing is that you can start whenever you want, no matter if you are 18 or 70, the investment opportunities will always be there for you.
If you are thinking about investing than you are on a really good path, we live in a digital age, with lots of possibilities to learn about something that you always wanted. You don’t need a college degree to start investing, everything can be learned online and you should definitely embrace that possibility.
Investing is a huge topic, it is very easy to get confused by all the things you read online. You can find hundreds of different books, articles, information, videos or “experts”. In this article, we are going to cover some simple points that will help you understand investing better and assist you on your way to reach financial independence.
To start investing, you first need to choose where do you want to invest your money. First, we are going to cover the most known ways of investing. Here are the top 4 investing types.
1 Stock investing
2 Investing in Bonds
3 Investing in Real Estates
4 Investing in Mutual funds
1. Investing in stocks.
” It is far better to buy a wonderful company at a fair price, than a fair company at a wonderful price” – Waren Buffet.
Stocks are traded on the stock market, which is basically the place where the shares are exchanged, people are buying and selling their stocks constantly. The market is open Monday through Friday for 7 hours a day.
Theoretically, by buying stocks you become a small owner of the company. For example. If you buy 1 share of Facebook stock, you are now the part-owner of the Facebook corporation. If you buy 10 shares of Coca Cola, you are now the part-owner of Coca Cola corporation. Although you are a very, very, very small owner of those corporations you still are the part-owner of those corporations, the more shares you buy the more ownership you will have.
We recommend you to use these two platforms for starting;
- RobinHood – RobinHood is one of the best places to start trading stocks. If you are a beginner and you don’t have a lot of money to start with, we definitely recommend you to start with this platform. This trading platform doesn’t charge a commission, meaning if you decide to buy 1 stock that is valued at $100, you will just have to pay $100 without paying a commission for buying.
- Fidelity Investments -This platform is really great if you have a bigger budget to invest with, the customer service is really great, you can contact them any time at day, and they will be there to answer your question. You do have to pay $5 commission when you decide to buy a share but if the customer service is important you, then you won’t be disappointed if you start using this platform.
So what is a Bond investing? Bond investing is simply a loan given to a company or a government by investors. A company or government borrows money from investors who in return are paid interest in money they loaned. Companies and Governments issue bonds frequently to fund new projects or ongoing expenses. Bonds are often viewed as a less risky alternative to stocks, and sometimes they are used to diversifying a portfolio.
There are two ways to make money with Bonds.
- The first way is if you hold bonds until they reach their maturity phase and you collect your interest payments on them.
- Another way to make money with bonds is if you sell it at a higher price than you paid for buying the bond.
Because a bond offers regularly scheduled payments, and the return of invested principal, bonds are often viewed as a more predictable and stable form of investing, although they also come with a dose of risk.
” Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world ” – Franklin D. Roosevelt.
When it comes to Real estate investing, there are 6 major ways of investing.
- Residential Investing – This form of investing is one of the most popular and most secure ways to invest in real estate. People need a place to live in, the world population is growing day by day, and the demand for houses and apartments is really high. This is a really good type of investing especially if you live in a country where people keep moving in.
- Commercial real estate – Commercial real estate tends to be a bit riskier for a beginner. This tip of investing usually means a higher price tag, which means a lot more money. Commercial real estate is any kind of real estate that you’re doing with some type of business purpose in mind. This includes; Convention centers, office buildings, shopping malls, hotels, restaurants …
- Industrial Real-estate – Industrial real estate investing tends to be cheaper because it requires fewer parking spaces and bigger buildings. Often business is doing some kind of manufacturing or store material in these warehouses, so they really don’t need any fancy looking building.
- Retail Real Estate – This is a very important kind of real estate. Retail real estate is where a business is using to sell their products. It is designed for consumers to walk in and for people to buy things from the shelf. Retail stores or shopping malls are part of retail type investing.
- Mixed-use Real Estate – Well the name speaks for itself. Mixed-use real estate buildings are used for different purposes. It can be used for commercial purposes and also for residential. You have the special zoning rights for the property to actually do multiple different things with it.
- Land Real Estate – This type of real estate is not really popular among investors, you own a piece of land that doesn’t really pay you and usually the have low ROI (return of investment).
A Mutual Fund is a collective investment that pulls together the money of numerous investors, to purchase a variety of securities like stocks or bonds. When you purchase a share in a mutual fund, you have a small stake of all investments included in that fund. A mutual fund is like a basket of investments. When you purchase a share in a mutual fund, you are buying one share of this basket, and therefore have a stake in one small fraction of all the investments in that fund.
Mutual funds can potentially benefit investors in several ways;
- Mutual funds are a good way to make a diversified investment.
- Most mutual funds are managed by a financial professional.
- They allow investors to participate in a wide variety of investment types.
- Risk is minimized in comparing to trading/investing in the stock market directly.
The managers of mutual funds are the people that are professional investors and have years of experience in managing and investing. So with the very small commission or absolutely zero commission in the case of direct mutual funds, all you have to do is to hand over your money and let go of all the worries and the tension that you would otherwise have to take in case of investing your money on your own.
There are a few different types of mutual funds, to make things simple we categorized according to the risk involved in investing in them;
- High risk – high return funds – As the name suggest, this type of investing contains high-risk factor. This type of fund tends to invest the shares in small-cap companies or companies which could be generally marked as the risky ones. In this case, the situation can go either way, if the situation turns positive, and the company does well, you as an initial investor will get a lot of benefits from that. In other cases, you could end up losing the money you invested.
- Medium risk – medium return funds – These types of funds tend to invest in the shares of the medium cap companies, they are relatively safer, and they usually offer medium returns that are around 10-14 % by offering only medium risk. Depending on how the fond is structured, they can also invest in high cap companies.
- Low risk – low return funds – These funds invest in large-cap companies, and they are generally considered as a very safe option of investing. The interest rate that they offer is between 8-10 %.
There are two ways in which you can invest in every mutual fund;
- Lump Sam Investment – The Lump Sam investment is when you take a certain amount of money and you invest the entire amount in one go.
- Systematic Investment Plans (also known as “SIP”) – In this type of investment, you don’t have to invest a large sum of money in one go. You can commit to investing small amounts of money every month for a certain number of years.
There is no minimum limit of money that you can invest in, mutual funds are very flexible so you can choose the amount of money that you want to invest in.
Now that you have the basic knowledge about investing, let us answer some common questions that every beginner has.
- What is the coast of investing? As much as investing comes with the rewards it also comes with costs. There are various things to take into account before you consider investing. Don’t rush the things, don’t expect to get rich overnight by investing in a few stocks. Do your research, analyze everything carefully and don’t rush with making decisions. If you are a complete beginner, then spend a good amount of time reading and researching.
- Is investing profitable? Yes, you absolutely can. By choosing the right investments you can reach the financial freedom that you always wanted.
- Is there a high or low risk? As we mentioned in the article, some investments are riskier than others. You are deciding which risk amount you will take.
Invest in yourself. This is probably the best advice that we can give you on vesting, investing in yourself will always be beneficial to you and that is something that you can never lose.
Learn as much as you can. There are tons of excellent books on investing, study great investors, study what they did, how they started, what mistakes they did on their journey?
We really hope that we helped you at the beginning of your investing journey, and we hope that this was a positive insight into what investing really is and whether this is the right profession for you. Remember to never lose your hope, we understand how hard it is when you are just starting out without any previous knowledge, but we encourage you to stay on your path and to keep your eyes on the prise.