Many of us are brought up with the idea that being employed and starting a business are the only ways to generate income. This is one of the reasons why the subject of investment is often seen as complex and intimidating. It is not a common point of discussion in the household nor is it a practice cultivated in us early on. In reality, the idea behind investing is simple. You are maximizing your earning potential by empowering your money to work for you. Instead of putting in more hours at work, getting a second job, asking for a raise, moving to a new company or starting a business to get more income, investing provides you with more options to profit. There are many ways for you to invest your money.
Here are the main types of investments that you can choose from:
This type of investment practices the buying and selling of company shares. Compared to bonds, stock market investing is quite volatile. The value of stocks fluctuates on a regular basis.
The laws of supply and demand mostly influence the rise and fall of stock prices. For example, if a company’s share price increases, it could mean that investors are becoming more optimistic about the company’s future. Thus, purchasing more stocks from the company that then directly affects the share price.
While there are no guarantees in stock market investing, it provides you with the opportunity to get better returns on your investment. You will be investing for Capital appreciation or regular dividend income. Historical data shows that stocks have consistently outperformed other forms of investment. Of course, earning a profit will not come easy as you need to be equipped with the right information, skill set and a good Investment training or mentoring in order to reduce the risks.
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Bonds fall under the so-called fixed-income securities that give businesses and governments a platform to raise funds. When you purchase a bond, you are essentially lending your money to a borrower with a promise of generating an interest.
They are what you may consider as low-risk investments if you purchase from credible, stable establishments like the government. The risk may be significantly lesser but so is the earning potential since you are relying on fluctuating interest rates. But, in 2016-2017 Bonds were return low Return on Investment so was not lucrative.
As the name implies, mutual funds are a collective investment scheme wherein a number of people pool funds in order to invest in stocks, securities and bonds. These investors share the same investment goals and are able to trade in diversified holdings. Take note that a professional will help in selecting specific securities and managing the portfolio.
Deciding What Is The Best Way To Invest Your Money
Now the big question is: Which is the most suitable type of investment for you? Here are just a few of the many factors that you should look at.
Set your goals
What do you want to get from your investments? What is your current financial situation? Keep in mind your needs, personal goals, and risk tolerance. Assume that there is no guarantee that you will get a return on your investment. Will losing your starting amount have devastating effects on your lifestyle? If you answered yes to that question, then you should probably go for the less risky, safer investment alternatives.
Determine your ideal timeframe
How long do you need to get a return on your investment after you invest your money? If you are looking into buying a car in the coming year or purchasing a house in the near future, that means you are in for a short-term investment. Meanwhile, if you are saving up for your retirement, then you are able to invest in shares or funds since these take longer to profit.
Understand your investment options
We have provided you with a quick rundown of your investment options. But there are a lot more factors that you should look into in choosing which is the best investment option for you. Learn about the pros and cons for each investment type and see if it matches up with the goals you set. The more you know, the better your financial decisions will be.
Do you have any additional tips? We would love to hear your thoughts in the comment section. Share with us any stock market investment topics that you want us to discuss in our upcoming blog posts too!