Investing 101
Warren Buffett. David Einhorn. Stanley Druckenmiller. Benjamin Graham. Chances are you’ve heard of at least one of these people at one point in your life. These are only a few of the legendary investors who have inspired thousands of people to begin investing with hopes of becoming rich.
When people hear stories of the investors who made billions of dollars, they often get excited and begin to look into investing with hopes to add their name to the list of history’s greatest investors.
Once they begin looking into it, they often realize how complicated and full of risk the process can be, and the flame within them is blown out.
Investing doesn’t need to be so intimidating that it discourages people from trying their hand at it. Yes, it can be complicated and yes, there is risk involved, but when it comes to investing, knowledge definitely is power.
If you’re thinking of starting to invest, here are the basic things you’ll need to know to get started.
What Is Investing?
Simply put, to invest means to expend money into financial schemes, shares, property or other things with hopes of achieving a profit. Warren Buffett, one of the world’s most renowned investors, once defined investing to be “…the process of laying out money now to receive more money in the future.”
What Are My Goals?
The first step to investing is determining what your goals are. Are you saving for college? Setting up a retirement fund? Looking for a way to possibly make some fast cash?
Your financial goals will ultimately determine how you will play your cards when it comes to investing and it will play a role in every step of the process, including what you invest in, the risks you are willing to take, how frequently you will trade, and more.
What Can I Invest In?
There are a lot of different things that people can invest in. Real estate, a startup company, cryptocurrencies, precious metals, annuities… the list of possible investments goes on.
Because “investing” is a general term, it is possible to invest in just about anything. However, some things are much better to invest in than others, so here’s a list of the most common things people invest in.
- Stocks are pieces of a company. When you buy a stock, you buy a small portion of a company. When the company does well, the value of it increases, which means the value of your stock does as well. If you sell your stock at the right time, you can do so for a profit.
- Bonds are a form of debt. When you purchase a bond, you are essentially loaning money to a company or agency in exchange for a repayment of your loan with interest. Many different things affect a bond’s worth, but the most important one is the direction of interest rates.
- Mutual funds are pools of investments. If you participate in a mutual fund, an investment manager will use your money to invest in stocks, bonds, or other investments that the fund’s contract labels. The appeal of mutual funds comes from the diversity of the investments — if your stocks are doing poorly but your bonds are doing well, you can still make a profit due to the diversity of your investing.
- Exchange-traded funds (ETFs) are similar to mutual funds, but their worth is evaluated in a different way — Mutual funds are evaluated at the end of each trading day, whereas ETFs are valued constantly while the markets are open.
Getting Help or Going Alone
Knowledge really is power when it comes to investing. Although there is always an element of luck and an accompanying risk involved with investing, the more you know about investing, the higher the chances of making a good investment that will pay off in the long run.
Because of this, it can be a good idea to hire help from a professional. The nature of investing is such that it doesn’t take long to learn, but it takes a lifetime to master, and a lot of people have dedicated their lives to researching, analyzing and trying to manipulate the market in their favor.
If you’re a beginner investor, it’s a good idea to get some help from a professional company or a friend who has experience with investing.
More experienced people can teach you what you need to know to minimize risk and make some serious money.
If you have experience with investing, have done your research, and feel like you have a good handle on how the market works, you can do it yourself and save yourself the fees that companies charge to invest your money for you.
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Category: Investing
