So you’ve decided to begin investing. Good for you! In your journey to financial independence, investing your money is a must. It’s a wise decision that can yield a lot of profit if done right. However, as a beginner, investing can be daunting, from stock shares to index funds or even crypto.
Also, one mistake in investing can cost you your entire savings. As such, it’s important that you have a basic understanding of how to invest the right way. And that’s what this article is all about.
We’ll be answering questions like, what should you invest in and when should you invest!
What Should I Invest In?
As a beginner, this is most likely the biggest question on your mind. Well, there are various options to choose from. They include:
Stocks
Stocks are stakes in publicly-traded companies that offer investors a chance to invest in a company’s growth. However, they also carry a potential for loss of value – they can even fall to zero.
But, if you play your cards right, you can make huge profits from investing in the stocks of a promising company.
Pros of investing in stocks
- Stocks have the potential to generate massive gains.
- The possible loss from cash-purchased stock is restricted to the initial investment amount.
- The majority of stocks are very liquid, meaning they can be bought and sold quickly at a fair price.
- While past performance is no guarantee of future results, stocks have historically provided very high returns in comparison to other investments.
Cons of investing in stocks
- Stock prices are volatile.
- Because stocks reflect ownership in a company, investors, like all others, are the last to get paid.
- While investors are part of the company’s ownership group, they do not have all of the rights and privileges that private business owners do.
- Stock prices can move around based on events happening in the sector, economy or even country.
Index fund
An index fund is a mutual fund or an exchange-traded fund that mirrors the performance of the market or a portion of it.
Index funds are popular for good reason; they are simple, hands-off, diversified, and offer low-cost options to invest in the stock market.
For a beginner, Index funds are an easy option to be well-diversified.
Pros of investing in Index funds:
- Index funds offer the advantage of being low cost and highly diversified.
- Lower Fees – By investing in index funds rather than active funds, investors can save money.
Cons of investing in Index funds:
- Index fund managers are less flexible than active fund managers since they must mirror a specific index at all times.
- Index fund managers have few options for mitigating losses when an index’s returns are quickly declining.
Cryptocurrency
A cryptocurrency is a system that allows for secure online payments using virtual “tokens” which represent internal ledger entries.
Pros of investing in cryptocurrency:
- Cryptocurrency is a stand alone market and should function outside of traditional capital markets –ie: it’s not tied to the movements of stocks and bonds.
- Certain token’s might give you access to unique investments (NFT’S, DAOs)
- Decentralized where the investors are supposed to be part of the decision making process.
Cons of investing in cryptocurrency:
- Highly volatile
- Decentralized can also be a bad thing—as Crypto is ripe with scams and fraudsters
When Should I Invest?
Now you have an understanding of what you should invest in, the next question you should ask is “When”. When should I invest? Am I financially ready to commit to an investment? A few signs that show you are ready are:
- Can you afford to pay your bills? Do you have money left over at the end of the month? This is the most important. If can afford to pay your bills and have built up an emergency reserve, then you might be ready.
- Have you thought about your long term goals and why you need your money to grow? Are there any short term needs? Once you have decided what to do with the money, then you might be ready.
Where Should I Invest?
When it comes to investing, there are a lot of options out there. You can invest in stocks, bonds, index funds, cryptocurrency, real estate, and more At the beginning this post we went over a few options. But where should you start?
Here are three places for beginners:
1. Robinhood – This app allows you to buy and sell stocks for free. (DIY)
2. Betterment – This is an online investment platform that helps you create a diversified portfolio (Some service)
3. Redwood Finance Planning – Offers individualized financial planning and wealth management services (full service)
Takeaway
There you have it, investment options you can dive into to make your first investment.
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