The life force of many successful Wall Street giants and the Achilles’ Heel of regular people- investment is a term that has the power to make or break your financial health. The good news is that learning about investments is relatively easily. You can get started with the basics and quickly make your way through new lessons to create better financial goals and achieve them with ease.
To begin with, let’s learn about some of the most common strategies for investment.
If you do not intend to take huge risks and want moderate returns over a short period, then these investment options are ideal for you. They include certificates of deposits, money market accounts, and even online savings accounts. These short-term investments can be good for people looking for minimal risk and modest gains.
Heard of Warren Buffett? He follows the value investment philosophy to the core. Though this investment idea is not for everyone, it is known to create wealth, just ask Buffett. In value investing, investors find stocks that could be underpriced depending on their personal rigorous research. These people understand the growth potential of companies are ‘stock junkies’ who are capable of going really deep into the stocks and companies and finding if they are really cheaper than they should be. These people then invest in these companies and wait for an opportune time when they may be adequately valued. This kind of investing takes a lot of time and patience. If you have a habit of checking market fluctuations consistently, avoid this type of investing.
This type of investment could help you in generating wealth over time by investing in assets that could potentially provide you high annual income. The risk in this type of investments is usually low. Bonds, stocks that pay dividends and even mutual funds are a part of this kind of investments. In addition to this, real estate investments are also considered income investments. Some fixed income investment can also provide you with a dependable stream of income while minimizing your risks. They could be good for retirement as well as a passive income option.
Growth and value investing are quite similar to each other. However, as a value investor, you prefer the buy and hold approach. In growth investing, you are looking for capital appreciation. The companies are chosen based on their revenues and profits and investors look for signs of above-average growth. The investment return is significantly high but so is your risk.
The capitalization dilemma
As a new investor, you must be aware of the type of options available to you. Big companies, also called blue chip stalks, are often considered safe investments because they have grown significantly and have now become market heavyweight. These firms often have large and diversified businesses coupled with billions of dollars or more in market capitalization. They may not have significant room for growth but are generally a safe option.
On the other hand, there are small and mid-cap stocks. These stocks belong to companies with smaller market capitalizations. They may be under-noticed, and some of them are actually doing great work with tremendous growth potential. Investing is risky, but the returns could be sizeable if the company is in the right direction.
Where should you invest?
Your investment choices will depend on your goals, your risk appetite and the amount you want to invest. The investment strategy cannot be the same for a 27-year-old with $500 to spend per month and a 50-year-old with $50,000 or more to spend yearly.
Investment is a risky business so make sure you talk to a financial planner before buying stocks. A simpler option to invest is to go for Systematic Investment Plans (SIPs), mutual funds and index funds. They give you the option to get the maximum benefits at minimized risk, mostly through diversification of funds.
The good thing about investing is that it keeps time on your side. Ideally, the longer you stay invested, the better your chances of making gains. If you haven’t started now, it would be futile to wait any longer. You would be better off with small savings getting invested directly than waiting for the right moment and ‘enough money’ to invest. So, get started today.