Investing your money is the most reliable and effective way to create wealth over time and secure your future financial needs. This is why a lot of financial advisors would tell you to start while you’re young to witness solid returns. It’s placing your money in an investment vehicle today to receive more money in the future.
Investing and Compounding
For a lot of people, the term ‘investing’ may conjure up images projected by the media. Because of these misconceptions, investing may seem like an intimidating undertaking. Although this may be partly true, especially if you’re a new investor, investing doesn’t have to be a fearful ordeal.
As a newbie in the landscape, it would be best to understand and take your time immersing yourself in its many facets. You may do research about how the system works, subscribe to the best investment newsletters to get the latest stock news, download a stock trading application to learn integral investing lessons, or even work with a financial advisor. Knowing how it operates can help you understand the concepts and principles, which allows you to reap the rewards fully in the future.
Today, with so many different options, investing for beginners is more straightforward, direct, and easy to navigate than ever before. If you perform your research, you should be well on your journey to a robust and secure financial future.
As mentioned, investing comes in many different forms and facets. In simpler terms, investing is a way to allow money to work for you. The goal is to commit money into the market or any investment channel to grow your money through compounding.
Compounding is the ability of an asset to produce earnings. This then will be used to reinvest and further generate more returns. To get you started, below are two easy ways to begin investing.
1. Work with a Robo-Advisor
If you have higher risk tolerance and want an algorithm to make investment choices for you, tapping robo advisory services may be ideal for your financial health. This is particularly applicable if your goal is long-term wealth-building while, at the same time, worrying less about the stock fluctuations or any economic slopes.
A robo-advisor is a digital service aid offered by a brokerage to help you formulate an investment plan that meets both your risk tolerance and financial targets. After identifying your goal and risk tolerance through a set of personal queries, your robo-advisor can invest your money in a highly-diversified portfolio of stocks and bonds to achieve your goals. It is programmed to maximize your ROI while ensuring that your risk level is non-threatening to your current financial status.
A robo-advisor provides the benefits of stock investing; however, it doesn’t require you to exert effort in examining and choosing personal investments.
Nonetheless, before you get too excited to reach out to these digital finance companies, you need to know that the potential downside of robo-advisors is their cost. These may charge an annual fee used to understand algorithms, rebalance your portfolio, and enhance it for taxes. Most robo-advisors require investors to pay USD$500 or less to start investing.
Although you can avoid paying the robo-advisor fees by approaching investments as a DIY project, take note that it will take a lot of time, research, responsibility, and, perhaps, prior investing experience. There’s no easy way to delve into the world of long-term investing. For this reason, majority of new and seasoned investors look at robo-advisory consultancy as worth the money, time, and energy.
2. Examine Your Investment Vehicles
As you start investing, your strategy should be tailored according to your saving goals and the period you’ve allocated to reach that goal. While there a lot of investment options to choose from, you need to be responsible and understand how much risk each carries. To guide you, here are the most popular investment channels:
A stock is a share of ownership in a single business. These are also known as equities. Depending on the company or even the type of industry, stocks are bought for a price ranging from single digits to a thousand dollars.
Ultimately, investing in stocks is applicable if you aim for a long-term savings plan. For instance, if your goal is to allocate money for your retirement, then stock investment can help you grow your money to cater to your future financial needs.
To note, stocks can vary in different forms. Investing in single stocks is more convenient as this helps you take charge of selling your stocks. You can control the timing of your gains or even losses. Creating a diversified portfolio out of a plethora of individual stocks is great. However, it may take time and a lot of research.
Hence, for some investors, an excellent way to invest in stocks is through low-cost stock mutual funds or exchange-traded funds. Mutual funds allow you to purchase and gather small parts of various stocks in one transaction.
A bond is a loan to a company or public entity that agrees to pay you back in a fixed number of years. As time passes by, you acquire interest from the loan they’ve made. For this reason, this investment option is less risky and is recommended for short-term savings, about five years, because you got a clear idea of when you’ll be paid back and how much you’ll earn.
The Significance of Identifying Your Risk Tolerance
Once you have adequate money to gamble, you can start investing. However, before you start putting in your hard-earned money, you need to initially ask yourself how you would approach the process. There are a lot of investment options available at your disposal because there’s no universal approach or alternative when it comes to investing. The best way to invest money is through whichever way works best for you.
Moreover, know that investing involves risk. Whenever you’re not holding your money in a savings account, there will be a threat of loss. The stock market can go up and down. Hence, you need to identify your risk tolerance. With some investments, the risk is low, while in others, it’s high.
Investing in stocks while you’re still young means you have decades to ride out the risk of market fluctuations. Consequently, this will provide you with more time for your money to compound. With this, start now, even if you have to start small.