By Anne El Bey
Before I discuss the best investments for beginners, you will need to research. Your money is on the line, so you have to take the time to learn the ins and outs of investing. There is no shortcut to becoming rich or building a substantial nest egg. Do not get discouraged. The tips are helpful.
Before I discuss the best investments for beginners, you will need to research. Your money is on the line, so you have to take the time to learn the ins and outs of investing. There is no shortcut to becoming rich or building a substantial nest egg. Do not get discouraged. The tips are helpful.
Books to Read
What to do before you start investing
- Start a Savings Account
You will need emergency funds just in case
something happens, so open up a savings account. If you have a plumbing emergency,
you will need cash to pay the plumber. According to Vanguard, you
should have money in the bank to cover three to six months of living expenses. Here
is a list of expenditures:
>Food
>Housing
>Health care
>Utilities
>Personal expenses
>Transportation
>Entertainment
>Vacation
>Dining out
Best Investments for Beginners
- Mutual Funds
Before you invest in mutual funds, make sure you have enough money left over to spend. You can learn
about setting a financial goal here. You also want to decide how fast you want the money. Do you want to
hold your funds for short or long-term? Knowing why you are investing the money
will aid you in picking the right mix for your portfolio.
Something else to consider is whether you
want to take risks.
The more chances you take, the more money you will make. However, if the risk
is small, your return on investment will be less.
- Index Funds
fund that tracks Standard and Poor's 500 Index. The investment
includes various securities and has low operating expenses and
low portfolio turnover. Since the fee to manage the Index Fund is small,
you will have more money in your pocket.
- Exchange-Traded Funds (ETFs)
ETFs work
almost like an Index Fund. The fund gets traded on the stock
exchange. The
assets included in ETFs are stocks,
commodities,
or
bonds.
They are one of the best investments for beginners. Similar to
Index Funds,
ETFs have a low operating cost, giving you more money
for your buck.
- Real Estate
Real estate is one of the best investments for beginners.
You can buy a
low-cost property, fix it up and sell it for a profit. Another choice
is to buy
property and rent it out.
More Investment Choices for Beginners
- Individual Stocks
If you choose this option, you will have much
research to do. As I have mentioned in the other blog,
it takes time and effort to pick the right investment. Investing in stocks
carries more risks than mutual funds. When you buy stocks, you are part owner
of the company selling the shares. You get voting rights at shareholders
meetings and a portion of the profit or dividends
the business earns.
Stock prices do not stay the same. Price
changes several times throughout the day, so there is no steady income
guarantee. Not all stocks pay out dividends. Your chance of making money is if
it increases in value. When they do well, the payout is huge. If it does not earn
money, you are on the hook for losing a part or your entire investment.
- Bonds
When you invest in bonds, you own debt. If
you are issuing it, you are lending money to whoever is buying. Another term
for a bondholder is a creditor. The reward for holding such a debt is receiving
interest. It has a fixed or variable rate and a specified period given to keep the
debt.
Bonds are safer than stocks. If you invest in
government securities, your portfolio is risk-free. So,
you will not get much of a return because of the low risk involved.
Conclusion
As
a beginner, you want to make the right choices when investing your money. Take
the time to do the research to make the process less confusing. Try to have
enough money in the bank you will not need otherwise. Start off with mutual
funds, index funds, or ETFs. You can also invest in real estate, individual
stocks or bonds.
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