An Introduction to Investing and How to Go About It
To invest is to put money into an account with the intention of a return/profit in the near future. Simply put, to invest simply means that you are buying an asset or an object with the intention of making money from the sale or the appreciation of that asset that is an increase in its value over an extended period of time. There are several ways you can do this. You can buy and hold an asset, you can borrow it and you can invest in it. The latter of these options is much preferred as you will make the most out of your money by paying less interest and also by gaining access to a much greater market.
When you are investing, it is very important that you understand the risks associated with such investments. The only reason why you would be putting your money in all the way up to the point of selling it off when the returns are not high is because you want to minimize your risk and also increase your chances of making higher returns. It is not always possible to do so as the stock market can go up and down at any given point of time and you may find yourself having to sell. It is not impossible though as some stocks do appreciate and the gains can be substantial. To understand this better, it is important to look at the various forms of investments and then identify the one that suits you best.
One of the main types of investments that you can look at is saving. Saving means putting aside money for the future so that you have a source of income in case the current economic conditions do not favour your present lifestyle. Some people find it easy to start saving by saving towards a house or a car. Others start investing their early years in savings or even in getting a college education. A major advantage with this form of saving is that you will have a source of income even during times of economic instability and that is something that you cannot get with bonds and stocks.
Another type of investment that you can look at is that of compounding. This is basically an interest rate that is applied to your saving or investment. When this starts growing, you get a compounded return on the amount invested in compound interest. In addition to this, you will get compound interest with any interest on savings and any deposit you make in a savings account. However, you have to remember that compounding interest does not have any limit so you should start investing and saving as soon as you can.
Another thing that you need to understand about investing is the concept of asset categories. Basically this means that you should categorize your assets in such a way that you are able to understand the different risks and rewards that you stand to enjoy as an investor. Some of the major categories of investments include stocks, bonds, mutual funds and property. This means that you need to do some research on which asset categories you would like to invest in. Once you know what you are comfortable investing in, you are on your way towards making some smart investment decisions.
These are just a few things that you need to understand about investing and how to go about it. Keep in mind that these are not set in stone rules and you will have to adapt as the market conditions change. One good thing to do is to follow an investment strategy like the one I am going to explain in this article where you will learn how to use a simple form of Dollar Cost Averaging to increase your returns and decrease your risk in investments.