A Beginners Guide to Investing

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Unless you inherit a big fortune or win the lottery, chances are you’ll have to earn your living. That being said, starting to organize your finances is not easy. However, after a while, you’ll learn to organize your income and expenses. Then comes the next step – figuring out what to do with what you have left. Once you’ve mastered the process of budgeting for the everyday expenses and small luxuries, it’s time to decide what you’ll do with the ‘’leftovers’’.

Step-by-step Guide for Investing Your Money

Many people these days choose to invest their extra cash and possibly even earn something by doing this. The tricky part here is deciding how much you’ll invest – and where. If you’re a newbie in the investment world, you probably have endless ideas and even more questions. Here is what you should know before you decide to invest your hard-saved money.

Step 1: Figure out what kind of investor you’ll be

How do you want to invest your money? Do you want to handle the process alone or would you rather hire a professional to do this for you? Here are your options:

·         Invest on your own i.e. DIY investing. This hands-on approach requires that you do all the research and make all the decisions. It is your job to keep track of your investments, your stocks, the situation on the market, and figure out the next steps.

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·         Passive investing. This is more of a ”make and forget” approach in which you simply dip into the investment market and just let it be. You can use things like bots and robo advisors like Stash.com and Wellfront.com to invest gradually in exchange-traded funds or mutual funds.

·         Investing with professionals. This is somewhat of a cross between passive and DIY investments. If you are not sure what to invest your money in, you can choose to hire a professional such as a stock advisor to pick your targets and track the market for you. You will, of course, have to pay them hefty provisions, but all the time-consuming research will be left to professionals.

Step 2: Choose what you’ll invest in

Before you make any kind of investment decision, you should know all of your options – and as much as you can about them. Regardless of your way of investing, this is the most important part. Whether you’re investing huge amounts or small, hardly-saved money, you need to take this step very seriously.

Today, there are many investment options and none can be considered the absolute best. Your decision should be based on knowledge of your options, as well as your risk tolerance, the amount you’re willing to invest, etc.

There’s no reason to put all of your eggs in one basket, either. It can be tempting to invest in the riskiest of stocks since those bring the biggest potential wins. However, you’re safest if you invest in different asset classes.

For example, you can invest in bonds and stocks, but also buy Bitcoins in Canada. Cash is considered to be the safest investment today. The value is often steadier than stocks and cryptocurrency. However, with stocks and cryptocurrencies like Bitcoin, your possible earnings are immense.

Don’t believe it?

Well, consider this. If you bought some Bitcoins in 2010 when they showed up on the market, you would have spent $0.0008 per 1 BTC. By the end of the same month, the value was $0.08. In 2013, the value grew to $250. Right now, 1 Bitcoin equals over $60,000!

However, investing in something just because it is trending is not a wise decision. Before you decide what to put your money in; you should know what your options are. These include:

Cash

 Investing in cash reserves might not be as rewarding as some other options, but it is considered the safest investment in the long run. Cash is usually very steady even if you add inflation into the mixture. Investments like these include interest-paying savings at banks or cash reserves.

Cryptocurrency

Saying that cryptocurrency has gained some traction in recent years would be an understatement. The digital cash currency has caused frenzy all around the globe. Every year, new cryptocurrency options are appearing on the market, combined with an increasing interest on behalf of investors.

Just in the first week of 2021, after a roller coaster for the Bitcoin price, this cryptocurrency reached its highest value ever. Even so, a bit later, the value dropped significantly. This is also a very tricky market to invest in, but the potential winnings are immense. People who bought Bitcoins at $1 or less just a few years back are now millionaires.

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When it comes to such a novel investment option, you shouldn’t be tempted to rush into it just because of numbers or statistics. Think carefully and don’t just consider Bitcoin. Yes, this is the first and currently most trending currency, but many others are as rewarding, and maybe even safer.

One such option is Tether. If you buy Tether, you’re purchasing a stablecoin – the most widely used one. Tether has held a 1:1 peg to the US dollar since it appeared in 2014. It’s a cryptocurrency designed specifically to minimize the stablecoin’s price volatility. It’s a very stable asset popular among investors today.

Bonds i.e. fixed income

This is when you decide to lend cash to an institution or government and collect interest in return. Some examples of bonds are certificates of deposit and mutual bonds. This is a kind of passive investment.

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Stocks or equities

When you own shares in an organization or company, you have stocks in it. If the company succeeds, the value of your stocks increases. If you choose a risky company, your stocks might diminish with time. But, even if you choose a successful business, sudden lawsuits or unexpected changes, whether it is in the industry or financial market, might bring the company to go bankrupt. When this happens, your stocks can lose value. Knowing this, you need to tread carefully even when you invest in stocks.

Real estate

Many people these days choose to invest in physical property. However, this requires a lot of time and must be done with caution. Since real estate usually costs the big bucks and the market changes a lot, you need to learn how to invest in it before you jump at the first opportunity that comes your way.

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Robo-advisors

After the financial crisis of 2008, new investors popped into the market. These are technology-driven advisory services that help people make investment decisions. You’d be using algorithms to make your investment decisions. According to a Charles Schwab’s report, 58% of Americans plan to use robo-advice and will do so by 2025.

Investing through employers

If you don’t have much to invest in bonds or cryptocurrency, try to save at least a bit. People can now invest as little as 1% of their salary at work and into their retirement plans. The amounts are very small and yet, work-based retirement plans will help you save some cash. You can also increase these as you get your future raises.

Step 3: Make an investment plan

Going into this blindly can cost you a lot and potentially bring on many troubles. Once you decide on what type of investment you’ll make, where, and how much you’re willing to invest, it is time to create a plan.

When you’re setting up the investment goals, there are several things to decide on. First of all, you need to decide whether you’ll invest in the short run or the long run. Here are the pros and cons of the two.

Short-term investments

Pros:

·         Lower risk because it has less time to be impacted by drops in interest rates or markets.

·         Higher liquidity because you can withdraw the funds faster instead of waiting to get them for years.

Cons:

·         Higher tax bills for many of the short-term investments.

·         Low return because you have invested your cash for a short amount of time.

Long-term investments

Pros:

·         Less risky since it gives you room to recover if the market experiences a sudden dip.

·         Bigger returns since you’re investing in the long run.

Cons:

·         A lot of patience and less liquidity because you have to wait a lot to get your money back (and the earnings).

Next, you need to decide how much you’re willing to invest. Having a budget is crucial when you’re investing, especially if you choose the long-run option. You wouldn’t want to invest all your money and be left penniless now, would you?

Final thoughts

Investing is good for two reasons. First, it allows you to save your money instead of spending them on irrelevant things. Second, it offers you chances of earning money if you invest them wisely. Few people use the opportunities that today’s investment market offers them – and there are plenty of them. So, if you tread lightly and smartly approach this, you can benefit from this – maybe even become rich because of it!

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