Investing basics
Each individual grows up learning that an income can be earned only by getting a job and working hard at it. Majority of the individuals have been doing that and will still continue to do it. But taking into consideration the money earned the individual gets to spend very less time for himself, as he is busy working to earn more money. A solution to this is making investments. Investments are a way of earning more money without spending those long hours pondering over work. An individual can make his money work for him by investing it, as investing increases the earning potential.
Fundamentals of investing
Investing is not a getting quick rich phenomenon, a lot of planning and understanding of the markets changes, discipline and a control over ones personal financial ways and bit of common sense are required. Each investment made will have its rewards and risks, these two factors always go hand in hand in an investment. Today investing has become a retirement plan more then a way of earning those extra bucks. The prices of commodities rise almost regularly, hence to maintain the same standard of living even after retiring. So, many of them make investments on which they can fall back later. Planning for the future guarantees a stable retirement option. The objective of each investor is to make lots of money; the only difference is, each comes from a different background and has different needs.
Before planning to invest, the individual needs to make self assessment over certain points like -
Objective of making an investment
The personality of the investor
The time frame
These three are the basic factors which defines the risk tolerance of the investor. As it is understood that millionaires objective of investing is totally different from a newly married couple, who have just started. The objectives depend on the investors age, his personal circumstance and the stage in his life. As an individual, who is about to retire, will have to make his investments conservatively as he wont be having the opportunity to call for the losses in the investments.
Types of investments
Investments can be made in a lot of different ways. By depositing money into stocks, mutual funds, bonds and real estate etc. a brief description of these methods can help the investors to plan there investments.
Stocks: On purchasing stocks of a company, the purchaser becomes a part owner of the business. It gives rights such as viewing there opinion in shareholders meetings and offers a chance to earn profits allocated for the owners on profit of the company. But as said before, it has its cons too. As large amounts are obtained, there are also chances of losing the entire sum invested.
Bonds: It comes under the fixed income securities category. On purchasing a bond, the individual lends out his money to the government or a company from whom he has purchased the bond. It has lower rate but guarantees security on the investment.
Mutual funds: A combination of stocks and bonds is a mutual fund. While making an investment in a mutual fund, the individual is pooling in money for other investors. Basic advantage is there is no need of an experience needed to invest in these funds.
Overview
Investing is not like gambling. An investor does not throw his money for an investment, he works, plans, studies and then puts in the money. Five basic principals can be followed while investing: keeping the fees low, diversifying the investments, keeping it simple, rebalancing to be on track and using index funds. The other types are real estate and gold deals, forex, and futures.
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