Investing is a good idea no matter how old you are or where you are in life. But how do you start investing when you don’t know what you’re doing? If the idea of investing scares you, here are the basics you need to know.
Stocks, Bonds, and Funds Basics
Stocks, bonds, and funds are all common methods of investing, but there are differences between the three. Stocks are shares of companies. When you buy stock in a company, you’re hoping the business will continue to grow and your investment will grow. You run the risk that the company will run out of fuel and your share will decline in value. If you’re looking for a long-term investment, stocks are a good choice. You’ll have to leave your money there and keep an eye on it, but you won’t want to sell your stock quickly since it will most likely either be worth the same or less than when you bought it.
Bonds, on the other hand, are essentially a loan you’re providing to a company. They’ll pay you interest until the bond matures and you receive the full amount back. This is a good way to gain a little extra cash on your money while staying fairly confident that you’ll receive the full value of the bond back. If you’re looking for extra income and aren’t concerned about a huge reward, bonds are a safe bet.
Funds can be a combination of stocks and bonds. When you set up a mutual fund, you give a professional the ability to manage your investments for you. He or she then decides how much to invest in stocks and bonds, or anything else you might want to invest in. Exchange-traded funds (ETFs) are similar but are only public exchange trades. Hedge funds operate on a high-risk, high-reward strategy. All the investment money is used in high-risk strategies in the hopes that the returns will be great. You can compare stocks, bonds, and funds with a professional and see what he or she thinks would be best for your interests and needs.
Property Investment Basics
For some, the idea of putting your money in a stock or bond might not be appealing. You could be more interested in property investing, even if that investment is your own home. While purchasing a home isn’t exactly investing for profit, you are building equity. Get the most out of your home by providing as large a down payment as possible and being very clear on mortgage 101. Know how big your mortgage will be if you have to take one out, and get the best interest rate possible. The quicker you can pay off your home, the better an investment it is.
If you want to do more than just purchase a home yourself, start considering the best type of property for investment. You can purchase an apartment or house to rent out. This provides you with a great source of a steady income and you might find that being a landlord works well for you. You could also hire a property manager and leave the hard work up to him or her. This person gets a cut of the income, but the work is significantly lessened for you and if you bought the property with cash, that’s just flat income for you.
When it comes to investing, start small until you get comfortable with what you’re doing. Buy stocks or bonds, or just stick with owning your own home. Any type of investing will be good for you financially, and you can work your way up to bigger investments and greater rewards.