The only way your money grows over time is by investments. But there is a stereotypical belief about investments; people think it is only the rich that is eligible for investments. Be you a student, low-income earner, or businessperson, everyone is qualified for investments regardless of your occupation. You just have to find a good plan that balances your financial prowess. You can invest as little as possible or as big as you want, it all depends on you. Although, it can be challenging but you are sure of earning more through legit investments. With this article, you will understand how to invest, why you need to make investments and more.
Investment is simply the placement of capital in the expectation of getting income from its use or appreciation. You can invest just about anything such as money, land, properties, etc.
HOW TO MAKE INVESTMENTS
When opting for investments it is wise to start with the basics even though you are earning big. Any financial advisor will tell you that. Begin with small investments, and then grow into bigger ones with time.
Set the goal for your investments
Before you start making investments, you must have a plan, a goal to achieve with that investments. That way, you are intentional about your investments. However, many people invest for the sake of investing with no set goal(s) to achieve with the investment, which is financially unhealthy for anyone. You need to have a clear picture of what you want with the investment, with that you will know what you are investing, how you are investing, and where to invest.
Know your investments
When you are investing, it is either you are buying a portion of a company or a commodity with the belief that the value of the company or commodity will grow over time, or you are buying a land or something else. Whichever one it is, do proper research before diving into it. Know the authenticity of the business or company you want to invest in. Get legal documents on the land you want to buy.
However you want to make investments, just make sure you have concrete legal backup and be sure of the originality of the potential investments plan. Take in as much information as you are able, and start highlighting quality companies that you believe will grow in value over time.
What you should know about investments
Investment is not a get-rich-quick scheme, but rather a way to consistently and gradually grow the wealth you already have. The good news is that even though investing is a way to grow your wealth, you don’t have to have a lot of money to get started.
Compounding interest dictates that even small sums of money can be turned into fortunes over time, providing you select the right investments plan.
Where to invest your money
There are plenty options to choose from as regards where to invest your money.
The Stock Market
The most common and beneficial place for an investor to put money is the stock market. Buying a stock entails that you own a said portion of the company you bought. When the company profits and grows, they pay you a portion of those profits in dividends based on how many shares stock you own. As the company grows, the price of your shares grow too. Also, you can still resell them at later date for profit whenever you want.
This is also another safe place to invest. When you buy a bond, you are basically loaning to the issuer, which can be a government, or company (you can buy foreign bonds as well). In return, the issuer promises to pay you a specified rate of interest during the life of the bond and to repay the principal, also known as face value or par value of the bond, when it “matures,” or comes due after a set period of time.
Bonds are typically considered ‘less risky’ than stocks, however, their potential for returns is much lower as well.
Rather than buying a single stock, mutual funds enable you to buy a basket of stocks in one purchase. The stocks in a mutual fund are typically chosen and managed by a mutual fund manager. This kind of investment provides access to markets by pooling your money with that of other individuals with similar investment goals (you see why you need an investment goal?). Mutual funds helps to reduce the risks typically associated with investments.
Also, in this investment, investors can buy and sell through the fund manager at any time. In Nigeria, mutual funds are regulates by the Securities and Exchange Commission (SEC) of Nigeria.
However, you will be charged by the mutual fund manager or managers a certain percentage based fee before investing.
Sometimes, this fee makes it hard for investors to beat the market when they invest in mutual funds. Also, most mutual fund investors don’t actually ever beat the stock market.
This is the least risky way of investing compared to other investments. Here, you invest your money by putting it in a savings account and allow it to collect interest. However, since this investment has little or no risk involved, it also means low returns. Also, savings accounts play a good role in helping you stockpile your cash that you can use to purchase other investments or use in emergencies when necessary.
This kind of investment is limited to things you physically own, such as gold or silver. They basically serve as a safeguard against bad economic times. Physical commodities have the tendency to appreciate with time as far you own something of quality.
Investment is not limited to age. Anyone can invest, even as a parent, you can make investments for your child/children or in their names. It is never too early to make investments. Just a simple head start can yield something big.
However, if you are in your 20s, it is advisable you focus on paying off any debt. Pay off all student loans or credit-card debt before making any investment. Though this is not just applicable to students alone, pay off your debts before you start making investments.
You can start investing now you are young, no matter how little or how much you are able to invest. It is not too early to secure your future financially.
TYPES OF INVESTMENTS
Short Term Investments
Short term investments is the most glamorized type of investment. It involves trading stocks over a short period of time other than buying and having them for several years. The sad thing about this is that no matter your skills in trading, there will always be a big element of luck involved. You can lose as much as you earn.
Long term Investments
Many people prefer long term investments because value investing is how people get rich. Rather than thinking about investing as a way to make short-term gains, it’s better to think of investing as a way of making long-term gains.
But know that you will still be making money either way. Though, with long-term investing, you are able to minimize your risk and avoid the after effects of short-term volatility and price-drops.
Other investment options
Investing money for small returns is incredibly easy and almost risk-free. For example, you can put your money in US treasury bonds and be almost guaranteed to earn 2-3% annual returns on your investment.
The problem is that 2-3% returns are not nearly enough for most people to reach their retirement goals.
To actually build enough wealth to retire comfortably on, you’re likely going to have to seek out higher returns.
If you are able to find these companies to invest in, achieving average annual returns upwards of 15% is certainly within the realm of possibility.
Over the past 90 years, the S&P 500 – which is an index of the 500 biggest companies in the US and a pretty good reflection of the overall stock market – has delivered an average annual return of 9.8%.
This means that if all you did was take your money and dump it into the S&P 500 with no time spent researching and choosing stocks, you could still expect to make 3-4 times more than if you invested in bonds and upwards of 10 times more what you would earn putting your money in a savings account.
Investing in a 401(k) is another way to invest in the stock market. The real value of a 401(k), comes if your employer is willing to match a portion of your contributions.
This is basically free money that doubles your investment regardless of what the market does, and it is certainly something you should take advantage of if you have the opportunity available.
Once you have reached the maximum amount of money that your employer is willing to match for the year, investing in a 401(k) becomes less desirable.
There are some strategies that will help you make good investments so you don’t blindly put your money in stocks chosen at random and expect to achieve great returns.
4Ms of Successful investments are:
One important factor to consider when analyzing the investment potential of a company is its management. Who is managing the company? Examine people and policies that make up the management board.
Companies live and die by the people running them, and you must make sure that your potential investment company is properly managed by executives who are honest, goal-oriented, talented, and determined.
Before you invest in a company, take the time to thoroughly familiarize yourself with its management. Also, make sure that you trust them to see to the growth of the company because that determines your profit too.
If you are going to invest in a company, it needs to have some sort of personal meaning to you and a link to your investment goals. Also, you stand a better chance of making good investments if you understand companies that have a personal meaning to you. With this, you can be able to analyze the future of the company. In addition, investing in a company that has meaning to you helps you research the company and stay on top of what is happening with it – which, in the end, is a big win for you.
A company with moat makes it difficult for competitors to carve away a portion of the company’s market. It is ideal to invest in growing companies just as they begin to reap the benefits of a wide and sustainable economic moat. In this case, the most important factor is the longevity of the moat. The longer a company can harvest profits, the greater the benefits for itself and its shareholders.
Margin of Safety
The last strategy to consider is the margin of safety. The Margin of Safety is a measure of how “on sale” a company’s stock price is compared to the true value of the company.
The difference between price and value is an important distinction, as a company’s stock price can vary wildly without their value ever being affected. So, before investing in any company, check their margin of safety. Does the stock price affect their value? Your answer will help you make the right choice. Also, using the margin of safety calculator, you can know whether a company’s stock price is relative to the true value of the company.
Furthermore, you can check various online trading platforms for more on beginner investors, how to buy and sell stocks without going through the traditional stockbroker.
However, to give yourself the best possible chance at succeeding as an investor and reaching your goals, you must learn as much about investment strategy as you can as well as how to practically apply the strategies that you learn.
Also, to learn further about stocks, you can register for stock trading courses online that are designed for beginner investors. They will teach you important things you need to know about the stock market. Such how to choose quality companies, when to buy and when to sell, and much more.
Also, the aim of such courses is to help you thoroughly walk through the process of investments with ease. Teaching you investment strategies and how to apply them in a much more efficient way.
Be open to learning. Be ready to make investments if you don’t plan to go broke in years to come. Remember, investment is not limited to age.
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