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

1. 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.
2. 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.
3. 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

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.