To define investing in a financial context is a very complicated matter because it encompasses various concepts and various approaches that are all very important. However, one thing is common in all these concepts and that is the need for proper consideration and assessment of risks before you put your money in any financial instrument. For that, you need to know what it is you want to achieve from your investing. Of course, before we move ahead with those aspects, let us first discuss the concept of investing itself.
Investing is to put money into an entity with the aim of a certain return/profit in future. Simply put, to invest simply means to buy an asset or an object with the intention of making a profit from the investment through some form of compound interest or a rise in the values of the asset as a consequence of regular investment. In general, the object of investing is something that yields high returns and has a low risk factor, hence the term ‘high risk”. High risk in this context means that you may not realize significant returns on your initial investments; hence, the need to have a fund capable of meeting with such conditions.
So, what kind of things should you consider before you start investing? First off, you need to determine whether you want to put your money into safe stocks that may offer higher returns at lower risk. If you have an overall idea of your needs, it will be easier for you to decide which type of investment to go for. Also, you can decide to invest small amounts or large amounts depending on your requirements. Here’s where the need for financial planning comes in.
There are different types of investments available to suit individual needs and situation, and these include such popular investment vehicles as bonds, mutual funds, stocks and real estate property. However, it’s important to keep in mind the time span that you have with your funds, as well as the return on your invested funds. A simple example would be to put a five hundred dollars a year towards bonds, and to earn one percent return per year on that, you would need to have your bond fund lasting for five years.
The same methodology is also applicable when you are thinking of starting small. You can start investing your savings and build up a portfolio of stocks and bonds to earn a six percent return annually. Of course, if you are interested in earning more, you can diversify into other investment vehicles, including in mutual funds and other types of securities. Apart from that, you can also think about putting your money in commodities like oil, gold and silver. As for the case of commodities, there are several options like buying and holding, commodity futures, currency trading, commodity trading online and so on. You can also consider putting your money in real estate, which could yield high returns over a longer period of time when put into a portfolio of bonds, stocks and real estate property.
Before you decide on which strategy you want to take, it’s important to keep in mind how much you are willing to lose in case of any disaster or adverse event. If you are willing to lose some amount, you can always stick with options like buying and holding period where you will not earn any returns until the required holding period. On the other hand, if you are more comfortable with earning high returns, then you can choose the bull market strategies like buying and selling at expiration, or purchasing at intraday and selling at closing. This option of investing allows you to sell out in a panic, and buy when the prices are falling. It’s important to note, though, that there are several risks involved in such investment techniques, which may involve short term price appreciation and losses in case of adverse events.