Introduction:
It is always recommended to develop a strong understanding of the basics of investment, before making crucial decisions. In this case, the initial stage has quite the learning curve, but once you are able to get a grip on the situation, you will be able to choose the right path for yourself. Let’s take a look at some of the basic points in investment.
What is Investing?
Investing is a process that includes committing money to generate potential profitable returns. It is a good method of making money and despite its risks, offers opportunities for significant profit margins.
Where Should I Invest?
There are a lot of ways you can invest your money, depending on your return expectations. In order to cover the basics of investing, we will take a look at the most common types of investment that you will come across, like stocks, bonds, mutual funds, and real estate. Let’s take a brief look at these, so you can understand which matches you the best:
- Stocks–
These are shares of ownership of the issuing corporation. Stocks involve greater risks but in turn, offer substantial monetary gains.
- Bonds–
When an investor purchases a bond, it basically means they are lending money to the issuing company and gaining interest over it. This involves usually lower returns and risk than stocks but offers a steady income stream.
- Mutual Funds–
These are pooled money from various investors, overseen by a professional fund manager, with a primary objective. It offers a diversification of portfolio, less management hassle, and considerable returns.
- Real Estate–
This type of investment includes real assets, requires experience, and has considerable risks and profit margins.
Some other popular investment methods include Certificate of Deposit, Fixed Deposits, Public Provident Funds (PPF), Unit Linked Insurance Plan (ULIP), etc.
How to Choose the Correct Investment Method?
Choosing the right investment method is one of the crucial steps that you have to make as a beginner investor. For example, if you want to create a diverse portfolio and have less time to directly manage your investments, then Mutual Funds are an ideal option. On the other hand, if you want to have a lower-risk investment, with considerable returns and a steady income flow, then investing in Bonds will suit you. However, if your return expectations are high and you are willing to take more risks, then stocks would be a good match. Make sure to go through the details of every investment method before committing to one. Apart from these, here are some factors that you should consider when choosing an investment method:
- Age
- Risk appetite
- Expected investment timeframe
- Financial goals
Conclusion:
There’s a lot more complex stuff that goes into investing apart from these basic points. You should learn more and put effort into gaining experience before making larger financial commitments. Investment requires patience, effort, and decision-making skills and involves risks, alongside opportunities of making money.
