New to investing? Here’s a quick guide
Keiena Aspinall-Ivey
- Money Lessons, Super & Insurance
Whether you’re a young professional, a retired individual or somewhere in between, investing is a skill that can help you grow your money over time. By understanding the principles of investing, you can make informed decisions to achieve your financial goals.
Types of investments
Stocks
Stocks represent ownership in a company. They are sometimes known as equity or shares. Over the longer term, investors hope that the value of their stake in a company increases. Investors can generally make money in two ways: By selling the stock for a higher price than they bought it (a capital gain) or through dividends – when money is paid out to investors for holding the stock.
Bonds
Bonds represent loans to a company or government. Generally, they have the potential to offer steady income streams.
Mutual funds
A mutual fund pools money from multiple investors to buy a diverse portfolio of stocks, bonds, and other assets. This allows for greater diversification.
Real estate
Real estate investing involves buying physical property, like single family homes or commercial buildings with the hope of generating rental income and capital appreciation.
Factors to consider before investing
- Time horizon– Your ‘time horizon’ is the length of time that you plan to hold the investment. Sometimes, people with longer time horizons can take more risk in their investment mix because they have time to recover from market downturns.
- Risk tolerance– Your risk tolerance is your willingness to accepts the potential downside of an investment. Factors that can affect this include your age, income level, and overall financial situation.
- Investment goals– Setting specific investment goals can help when selecting a strategy. Whether you’re saving for retirement, a down payment on a house, or something else entirely, goals often inform investment choices.
Benefits and risks of investing
Investing can be a powerful tool for wealth creation and building, but it’s important to remember that all investments carry some level of risk. Benefits of investing include potential capital appreciation and income generation, while risks include market volatility and the potential for losses.
Other considerations before investing
| 1. Financial situation | Depending on the type of investment chosen, there’s an initial cost to buy in and hold an investment. Often, this has to be considered against the investors other savings, debt and obligations. |
| 2. Researching different options | Research different investment options and look at their track records, but remember that past performance doesn’t mean something will necessarily perform well in the future. Look for investments that align with your goals and risk tolerance. |
| 3. Consider the market | Keep an eye on market trends and economic conditions. |
Investing is an essential tool for wealth creation, but it requires careful evaluation and a willingness to accept some level of risk. Use this guide to decide whether investing is right for you and consider working with a financial advisor for further guidance. With a solid plan in place, you can begin building your portfolio that supports your long-term financial goals.
Like every article on this website, this is not personal financial advice.
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