The Basics of Personal Finance Investing
Overall, investing is a great way to build wealth or a ‘nest egg’ for your retirement. If you invest regular amounts of money on a consistent basis over a long period of time, you are more likely to be successful in reaching your financial goals. By knowing just a few investing basics, you can get started with a variety of income options.
Three Types Of Investments
There are three basic types of investments you can choose from. There are stocks, bonds, and short-term investments.
Stocks
Stocks can also be referred to as equity investments. These are investments in individual companies that are publicly held. Stocks allow you to hold a small ownership in these companies. When invested in long-term, stocks have a high potential for growth. Stocks are not without risk, however. If the price of the stock drops, so do the investor’s earnings. If a company goes out of business, the owners of the stock can lose their entire investment. It is wise to invest in the stock of companies that have been around for a very long time and that have a track record of rising stock prices.
Bonds
Buying a bond is basically lending money to the company you are purchasing it from. An example of this is buying a bond from the U.S. Treasury. After purchase a bond, you would be paid back after you cash it in. Buying bonds has the potential to increase your wealth with a lower risk than purchasing stocks, as well as the benefit of having a bit of protection from economic inflation.
Short-Term Investments
Short term investments can include money market investments, certificates of deposit (CD’s), and others. After a short period of time, you can earn interest on these investments. You can usually begin receiving interest in as little as one year or less. These short-term investments are much less risky than stocks and bonds, but there is lower potential for growth. This means you can not expect as large of a return on a short-term investment as you could from stocks or bonds.
The best way to get started is to contact a reputable financial advisor. He or she can get you started in your endeavor to begin investing. Beginning an investment portfolio can be an important piece of your retirement puzzle. Even when starting a 401K with your employer, these basics will help you determine which choices to make when it comes to choosing how to invest your money. Typically, a financial advisor will tell you that a younger investor can take bigger risks than an older investor. Listen to his or her advice to get on the right track to growing your wealth.
Whether you decide to invest in stocks, bonds, short-term investments – or all three – it is best not to go at it alone. Using the professional services of an experienced financial advisor is your best bet to earning as much money as possible. If you are not sure where to find a financial advisor, ask around to friends and family for a recommendation.
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