Investing money is a way for individuals to save toward
their goals, whether it be retirement, a child's college
education, or some other financial goal. Beginning
investors need to take time to determine their goals and
learn some basic concepts of investing before jumping
right into making an investment. Successful investing takes
much research, time, and patience. As beginning investors
start to have some success in making money through
investments, they will develop a degree of skill.
However, there is still a degree of risk involved even the
most seasoned and skilled investors. Finding the answers
to some basic investing questions will help make the
efforts of beginning investors more successful.
One common misconception by beginning investors is that
they must have a large sum of money to make an
investment. The truth is, many investments can be made
for as little as hundreds or perhaps a few thousand dollars.
One way to begin investing small is through dividend
reinvestment plans or direct stock purchase options.
Investors may be able to invest in a company's stock
options by paying a minimal start-up fee, often as little as
$25 or $50 and making an initial investment. Once the
money begins adding up, it can then be transferred to a
brokerage account, where the investor will be able to
begin investing larger sums of money.
Once investors determine that they have enough money
to make an investment, the difficult part is often deciding
where to invest their money. There are many different
options for investors; some of the most common
investment options are mutual funds, bonds, futures, and
Mutual funds - A way for individuals to invest without
having to manage their investment "hands-on" is through
investing in mutual funds. Mutual funds are investments
that are handled by a fund manager. This fund manager
invests the pool of money, contributed to by several
individual investors, in the financial marketplace. The
funds may be invested through closed or open-ended
funds. Closed funds have a set number of shares that are
distributed to the public and are traded on the open
market; whereas open-ended funds to do not a set
number of shares. The trader will re-invest into new
shares for the investor. The shares are overseen by a
professional money manager who is trained to select
investments that will provide the largest returns to the
Exchange traded funds - These funds, known as ETFs, are
pools of investor money that is invested in similar ways to
mutual funds. However, since ETFs are designed only to
track certain indexes and much of their management is
computerized, their maintenance costs and fees are
generally much lower.
Bonds - When investors purchase bonds, they are buying
an interest in a company or corporation. The companies
issues bonds, which is a loan from an investor. In turn, the
company agrees to pay this investor back at determined
intervals with interest. Investing in bonds can be a fairly
secure investment. Unless the company goes bankrupt,
the investor is almost certain to receive back at least the
minimum amount of his investment. These interest
payments at set intervals can be a source of steady income
for retired couples or others wishing to create a type of
investment where they can generate consistent returns.
The interest earned on bonds can be tax exempt with
some types of bonds.
Real Estate - Real estate can a good investment when the
timing is right but often requires a lot of work. One easy
way for investors to enter the real estate market is
through a real estate investment trust, or REIT. Investors
become part owners in the investments of the REIT such
as malls, park garages, hotels, or other real estate
ventures. REITs often pay out high cash dividends to
investors because the REIT pays no federal income tax in
return for paying out 90 percent or more of their profits to
shareholders in the form of dividends. Another way of
making money through investing in real estate is through
purchasing properties, improving the properties through
repairing them or adding amenities, then selling them at a
profit; or renting the houses to tenants and receiving a
monthly income from the payments.
Futures - Futures trading is the marketplace where buyers
from around the world buy and sell futures contracts. A
futures contract is an agreement to receive a product at a
future date with a set price. Once the price is agreed upon,
the price is secure for the next year regardless of the
changes in the market. Some common futures markets
include commodities, currencies, stock indexes, interest
rates, and other alternative investments such as economic
indicators. The rewards of this kind of investing can be
great but so are the risks. Therefore, futures should be left
to the most experienced investors.
Most professional investment advisors will confirm that
diversification is the key to a successful investment
portfolio. Investors who spread their investments out
through several avenues reduce their risk of losing all of
their assets should the investment fail. While it may be
tempting to dive right in and start investing large sums or
money, beginning investors should balance the potential
profit against the risks they are exposing themselves to in
the investment marketplace.
A professional investment advisor can provide beginning
investors with the basic information needed to start an
investment portfolio. An investment advisor sometimes is
also a financial planner and can help with all financial
matters. Some investment advisors are paid a percentage
of the value of the assets managed, while others charge an
hourly fee or are paid on a commission basis.
For investors who would like to avoid these fees, the best
strategy is to do some study and start with mutual funds
or ETFs offered by reputable companies.