What are the Basics of Investing?
The three core components of basic finances are: budgeting, saving, and investing. If you don’t understand investing just yet, don’t worry. You are not alone.
The following easy to understand guide will help you learn about the basics of investing. Furthermore, we provide easy steps so that everyone can start improving their financial health and financial security for the future. Start simple and learn the basics of investing, personal finances and saving.
Why You Should Invest?
Everyone should consider investing for one simple reason: it can help increase your overall income. Of course, everyone likes having power over their income.
Investing provides you with the potential for a significant income increase, depending on the type of investments you choose. Research before you decide to become involved with any investment type. Unfortunately, a simple savings account with no or low interest can no longer have a great effect on your income.
On the other hand, investments create a way to generate passive income. In other words, you can create a source of income besides what you earn through employment.
Many people, whether they are living on their own or working to support a family, can benefit. Gain the knowledge & ability to increase your finances through passive income.
Another reason to consider investments is less serious, but still applicable: it can be fun. Learning how to invest your money is a rewarding, worthwhile skill. Indeed, increasing your financial health is an exciting rewarding task.
Investment Options
There are many different investment options available. The following are the most common types of investment options that should be considered by the average person.
What are Stocks and Bonds?
Stocks refer to a share of ownership in a particular company. However bonds are a loan to a company (or in some cases, a government organization) which is essentially a legal promise to pay you back after a certain period of time. Stocks are considered riskier than bonds. This is because the value of stocks may rise and fall, affecting value. Whereas with bonds, you earn money through earning interest on your loan before it is paid back.
What are Mutual Funds?
Simply defined, mutual funds refer to a combined type of investment. Many stocks or companies are packaged together into a single mutual beneficial fund.
Indeed, mutual funds are typically considered less risky than purchasing standard stocks, since they combine both potentially risky stocks with low risk bonds. Mutual funds are often offered through 401(k)s and similar accounts.
How Much Should You Invest?
All of your money! only kidding.
Deciding how much you should invest can be a difficult decision. As a general rule of thumb, you should consider what goal you have for your investments. Are you investing money in order to contribute to a retirement fund? A college fund for your children? Or something else?
Once you have some sort of goal in mind, it will be easier to determine how much you should invest. Experts generally recommend investing about 10-15% of your income annually for a retirement fund; whereas you may want to invest less for other goals, such as children’s college savings.
Many beginner investors have less concrete goals, such as simply wanting to invest in order to potentially secure higher financial income. In this case, they may want to approach investment amounts differently.
For instance, if as an investor you are interested in investing in stocks in the hopes that a stock’s value will rise enough to provide a serious financial windfall, set aside a larger amount of money for that stock.
Obviously, to really create a “windfall” situation with your investments, you need a huge return. Unfortunately, for a high return, you often need to wager more cash. While some people are comfortable with this level of risk, we don’t advice it for beginners.
Instead, cautiously and prudently set aside small amounts on a monthly basis for your stock investments. Ideally, these small investments will see a modest return in time.
Conclusion
Just remember to do your research before committing to any investment, particularly higher risk investments like stocks. Start your journey towards successful personal finance habits today.
