Basic Guide to Investing
If you’ve always dreamed of getting wealthy or retiring early, you should already know that relying on your 9 to 5 job isn’t going to get you there. Well, at least that is the case for most people. Investing is the first step towards getting the financial freedom that you have always dreamed of. In simple terms, investing is getting your money to work for you, with great returns and growth. If you are thinking of becoming an investor, you must first be armed with the knowledge of what is available for you. There are different investment options that you can look into, and these include:
Purchase of stocks makes you a part owner of a business, and you are eligible to receive the profits allocated to the company’s shareholders. The profits are known as dividends. While stocks are a great way of ensuring steady income, the truth is that they are volatile and this income is not always guaranteed. In comparison with bonds, stocks provide higher returns. However, you must be prepared to lose some or all of your investment money as the risk associated with stocks is high.
Bonds are categorized as fixed income securities, and refer to any investment that is founded on debt. Purchase of a bond means that you are lending your money to a company or government, in which case you are to be paid the interest accrued on your money plus your principal amount eventually. The reason many investors prefer investing in bonds is because they are relatively low-risk but this also means that the potential of return is low.
Mutual funds are a collection of bonds and stocks. They are referred as ‘mutual’ because when you decide to invest in a mutual fund what you are doing in essence is pooling your money with a group of investors, after which a professional manager selects specific securities for you. This is advantageous in that even if you are not experienced in investing or do not have the time to monitor all your investments by yourself, you can still invest and someone else does the detailed work for you.
Whether you are a new investor or someone who has been in the investment market for a long time, the bottom line is that you must arm yourself with sufficient knowledge on matters investment. It does not even matter whether you get someone else to do the work for you or if you do it for yourself; either way you must know where your money is going, and what to expect from it.