What is an investment? Why do some people find investing easy
while you find it a bit complicated? How do investors come up with money to
invest? These are just some of the common questions people ask when they start
venturing into investments. How easy or difficult is investing anyway? Let's
find out.
Your savings are the most basic form of investment. If you can't
save money, then you cannot invest. Investing is complicated. Many people are
hesitant to get started because there is so much (often conflicting)
information about investments, so many choices and so many risks. But it
doesn't have to be that way.
Here is a crash course to get you started.
A typical investor
A typical investor has credit card debt under control. It makes no
sense investing in stocks, bonds, or mutual funds if you have a lot of credit
card debt and an interest rate of more than 10%. You don't have to be debt free
to invest but make sure to pay each debt each month. You also should be paying
low interest rates on that debt. A typical investor also has an emergency fund
of at least three months' worth of basic living expenses. And finally, a
typical investor has a 401(k) plan so he can maximize his contributions and
diversify his investments.
Where to find the money to invest?
Plenty of stock mutual funds allow you to invest with $500 or
less. Take advantage of your next bonus, your income tax refund, or your extra
cash in your investments. If you can't come up with at least $500, there are
funds which let you skip your initial sum of investment if you sign up for
automatic monthly withdrawals of $25 to $50 from your checking account.
How to choose an investment?
The first step is knowing your investment goals. Are you saving
for a college fund? Are you saving for a house? Retirement? The type of
investment you choose will depend upon the amount of time available before you
need the money. Stocks, for example, are long-term investments. It is best to
hold stocks or stock mutual funds for more than five years. If you need the
money sooner, then reduce your return by cashing in when the value is down.
What is risk tolerance?
If you hide your money in your room because you don't trust the
bank, you probably will not feel comfortable when investing in stocks.
Where do I put my investments?
Most experts recommend spreading your money over different types
of investments to reduce risk. This is because investments can go down or up
depending on numerous factors. For example, when stock mutual funds or returns
on stock are high, chances are returns on bonds will be low. If you have your
money in both types of funds, you are likely to get a decent combined return
even if one fund takes a downturn.
As a beginner, choose stock mutual funds over stocks in individual
companies. This is because stock mutual funds have less risk than an individual
stock. If a company does poorly, you will still have a good return but if a
stock in one company goes poorly, you'll lose money.
Author - Md Abdur
Article Source:
http://EzineArticles.com/7591357
