Investment
A guide to different types of investments
If you’re new to the world of investing, it can seem very intimidating. We all know a thing or two about investment from reading the newspaper and watching TV (in recent months, shows like Mad Money with Jim Cramer have made investing a hot topic). If you’re new to investing, here’s a quick look at the most popular types of investments:
- Stocks. When most people think about investing, they think about stocks. Owning stocks (also called shares) means you have partial ownership of a company. Stocks are volatile. This means that if the company you have invested in is profitable, the value of your stocks will increase. Unfortunately, the reverse is also true - if the company goes out of business you can lose all your money.
- Bonds. When you buy a bond, you are loaning your money to the government or a business. You are promised that your money will be paid back, plus interest, after a set period of time. Bonds are considered to be the safest investment. Though you will never “strike it rich” by investing in bonds, you will see your money grow over time.
- Mutual funds. Mutual funds are collections of stocks and bonds that are pooled together among many investors. For many beginner investors, mutual funds are the most attractive option. They are certainly the easiest way to invest - rather than taking the time to assemble a diversified portfolio, you can let the professionals do the work for you.
How Much to Invest
The first question that many new investors ask is, “how much should I invest?” The answer is simple: developing an investment strategy should depend on how much money you have. If you’re struggling to get by with your current income, it’s probably not the right time for you to start investing. On the other hand, if you have money that’s sitting in a savings account and earning next to no interest, it’s worthwhile to invest it.
It’s great to put money away and let it start growing, but you need to be smart about how much you invest. It’s never a good idea to dive head first into the investment world. Instead, start off with a few small investments and try to get a feel for how it works. As you start to earn money, reinvest it and continue to grow your portfolio. Before you know it, you may find yourself shouting madly on the floor of the New York Stock Exchange!
