Not many people in the world are employed as investors. Only around one percent of the world population is involved in the international stock exchange, even though in many countries, even people who stay at home know how to manage their funds. As a poorly explained area of business, investment often looks scary to the uninitiated and suffers from numerous absurd myths. Let’s highlight the most popular ones:
Myth No. 1: Investment is for the rich.
Actually, you only need a few dozen dollars to get started on the stock market. For instance, unit investment funds generally accept amounts starting from 50 or 100 USD, and some brokers don’t even limit the minimum investment amount.
Myth No. 2: You cannot earn anything without in-depth knowledge and skills.
It is true that you should be familiar with the basic terms and operating principles of economy, but consider that whenever you make a bank deposit, what you essentially do is make an investment. Doing a quick Internet research should be enough to get you started.
Myth No. 3: The risks are too high to make it worth the trouble.
Once again, note that bank deposits are also eligible for compulsory insurance. There is a principle at work here that could be perfectly summed up as follows: the higher your profit, the higher the odds of failure. A cold head will serve you well when picking your investment targets.
Investments and Investing: What Does It Mean and What Is It For?
Let us review the glossary to make sure you understand it. Here are the main definitions that will help you form an idea about investment without messing things up:
- an investment is an act of depositing your funds with the view to extracting profit from it;
- investing is the process of expanding your funds and gaining new investment tools to increase - your profit further;
- investment tools are your available investment forms that you can use to gain profit;
- the portfolio is the sum of all investment tools you have invested in;
- diversification means distributing your funds among several assets to minimize risks and maximize profit;
- a broker is a person who acts as an intermediary between the seller and the buyer;
- a brokerage account is an account used for buying and selling stock and other investment tools at the stock exchange. You can start such an account with your broker or at a bank that has a broker division.
- an individual investment account is an account meant for making investments and subject to certain tax benefits and limitations.
The success of any undertaking largely depends on preparation and consistency of your chosen strategy. All financial investments bear an inherent amount of risk, but a smart approach and error evaluation reveal the true advantages of investment:
- you gain a constant source of income that does not require you to spend every day working routinely;
- there is no profit ceiling;
- the profits are higher than inflation rates;
- you gain financial awareness.
Where to Invest: Tools and Strategies
There is a vast number of options for investing money. As far as the investment target is concerned, the following forms of investment can be singled out:
- real estate: land, real property items, machinery and equipment;
- intellectual property: patents, research, and education;
- financial instruments: stocks, bank deposits, precious metals.
- bank deposits: the easiest and least risky, but also the least profitable. Deposit insurance may apply to certain amounts under certain conditions;
- stocks: risk level is determined by your choice of the issuing company. You can gain profit from dividends or stock value growth;
- bonds: — debt securities, generally more profitable than deposits, but still barely above inflation rates;
- unit investments: you gain an interest in a common portfolio, and the profits are distributed among all participants in proportion to their investment amounts. You can start by investing as little as $20;
- precious metals: you can either acquire your desired metal in its physical form or use any of the available stock instruments.
One important point you must never forget when investing is your strategy. Develop one based on your investment goals, level of expertise, and amount of free time. Experts differentiate strategies according to two main criteria: payoff terms and risks. The payoff terms can be as follows:
- short-term (less than a year);
- mid-term (1 to 3 years);
- long-term (over 3 years).
As far as the risks are concerned, two main approaches exist: conservative and aggressive. The former means mostly passive income with long-term payoff; the profits aren’t high, but neither are the risks. The latter necessitates some in-depth knowledge and more free time on your hands, but rewards you with the opportunity to gain much, quickly. The risks are high.
As your expertise grows along with your available funds, you may feel the need to re-formulate your goals and pick new investment tools to work with. Despite this, it is recommended to begin your career with the safest, most proven tools.