How do I start investing?
To invest is basically to put money into the expectation of a return in future. That means, to invest implies having an asset or piece of property with the intention of making a profit from the investment through the increase in the market value of that asset or price over a definite period of time. There are many types of investments but they all have one common factor and that is the profit. But how can you choose the best investment? Here we discuss some investment types and strategies.
Whats an Instrument?
An instrument is anything that produces a definite value at a definite date and time such as stocks, bonds, mutual funds, etc. Some examples of these assets are property, stocks, mutual funds, etc. Other categories include derivatives and financial instruments. Derivatives are any financial obligation or instrument that is based on the prices of underlying securities such as mortgages and derivatives. Financial instruments are any obligation or right that is based on the values of underlying assets such as forward contracts for difference, interest rate contracts, currency exchange deals, credit default swaps, commodity contracts and interest rate swaptions.
What is a Bond?
A bond is usually secured by stocks or by the government. Stocks and bonds typically have fixed interest rates over a specified period of time; the longer the duration, the more secure it is. A bond issue may be in the form of tax-exempt bond coupons. Bonds pay higher returns when they are growing due to rise in market prices. When the market falls, bonds paying higher returns also tend to suffer losses.
What’s a mutual fund?
A mutual fund is made up of various types of stocks or bonds and is managed by a professional fund manager. There are many different types of mutual funds like; money market, stock, bond, wealth and gem stocks, etc. An investor can choose the type of investment according to his preference. Many investors prefer stocks and bonds, whereas some invest in both.
What if I dont have much money to invest?
These investments are ideal for any investor who has a small amount of capital. They offer higher returns but the risks are also less. In case of mutual funds, the investor buys the shares from the fund manager at a specific price and receives a dividend check from him. This check is given to him once in a month. Most of the mutual funds do not pay any dividends.
The concept of investment is a bit confusing. An investment refers to buying something with the intention of making money from it. Usually this is done to buy shares from companies or organizations. There are various ways of investing in different kinds of assets.
It could either be buying the shares directly from the company or through shares in a brokerage account or with an agent. Buying the shares directly from the company is called a direct investment. On the other hand in buying brokerage accounts through shares and stocks, the investor has to pay some commission. Most of the investors prefer bonds and stocks as the returns are higher than the higher price paid by the brokers. Moreover it is a safe way of investing as the returns are almost fixed.
Investments in bonds and the stocks will produce regular income in the long run. When these investments are made with proper care, they can provide a steady and regular income. But before making the investment, it is necessary to keep the regular income in mind. It should not be higher than the regular income to avoid any loss.
Equity Investing
One of the most common ways of investing is through equities, i.e., stocks. In this process, you will need to buy the shares of the company. This is one of the easiest ways of generating income but it is important to be careful while choosing the shares for your investment.
Speculation
Another risky method of investing is through speculation. Speculation is also a form of investment but this is a high risk process. Those who are interested in investing in stocks and bonds through speculation should do so with caution as there are chances of losses. There are many unscrupulous speculators in the market and they are known as frauds.
Holding Period
The best form of investing is through a systematic approach and that is to hold period. Holding period means buying a stock or a bond for a particular period determined by the investor. If you invest in stocks, you need to have a holding period of say two or three years to make sure that your investment is secured. There are other factors to consider when investing and the returns may vary from time to time. Always remember to diversify your investments to reduce your risk.
