Despite what’s going on worldwide, it’s now an excellent time to learn investing for dummies. While others see bleak days ahead, investors see a period of opportunity. Start with a small amount of money now, and you could earn substantial long-term yields!
We’ll start with what it means to invest and why you should do it. Contrary to popular belief, you have plenty of investment options that you could start with a bit of cash. More importantly, there should be a strategy guiding your investments toward specific goals.
Investing helps people in various ways, from managing personal finance to building wealth. Moreover, it could pave a path towards your personal goals. That path could start with even a little bit of money.
What does investing mean?
It just means buying something that may have a higher value in the future. For example, real estate investing involves buying a property to resell it later at a profit.
Some assets even give regular payouts. Some certain stocks and bonds offer dividends or fixed-income. It’s also known as passive income since you don’t have to work to earn more.
Instead, you earn based on how a company makes. If it performs well in a quarter, you earn more dividends. Otherwise, you might earn less or none at all.
In other words, risks are always a part of investing. No matter what your investments are, they might not pan out. Yet, this doesn’t mean you shouldn’t start.
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Why do I need to invest?
Now that you know the gist, it’s time for another essential part of investing for dummies. This involves your reason for investing in the first place.
There are many reasons why people buy stuff for future returns. Some people want to become wealthy from their investments. Others want to secure their finances now.
On the other hand, a person may invest in preparing for retirement. You may also help a company by investing in one. Let’s go through these investment goals one by one.
You may have heard of people getting rich from stocks and other investments. Nowadays, cryptocurrencies are the trending asset for wannabe investors.
They buy the options that have a potential for long-term growth. Contrary to popular belief, they’re the ones that most people don’t trust.
Yet, people HODL (hold on to dear life) their investments. If they chose right, the value of their assets grows tremendously. As a result, they earn huge returns.
Take Warren Buffett, for example. Dubbed the Oracle of Omaha,” he picked stocks carefully in his early years. After several years, he’s now one of the most prominent investors in history.
Hedging against inflation
While others invest for profit, some invest for protection. Specifically, they want to secure their purchasing power. They understand the effects of inflation during an economic downturn.
We’re experiencing a global recession unlike anything in history. As a result, inflation massively increases the price of goods and services. Thus, fiat currency loses its purchasing power.
In response, people buy assets that are likely to resist inflation. The most common choices are bonds, real estate, and gold coins. Once the economy recovers, they revert them into money.
Preparing for retirement
Some countries like the United States use mutual funds for retirement. Others have a social security system they pay for several years. Then they use the money set aside later in life.
The US even allowed its citizens to withdraw their retirement funds early. It’s part of the CARES Act that aims to help Americans get through the pandemic.
Still, this isn’t enough for some people. They invest in numerous options instead of relying on just one. This allows them to minimize risks and maximize their long-term funds.
Helping a business
Have you ever considered the other side of investing? Companies need investors for various reasons. A new business may need capital to start. You could provide the funds they need.
This lets them start operating. Eventually, they’ll grow and earn more revenue. When that happens, you’ll get your money back with interest.
On the other hand, older companies may need funding for expansion. They might want to get new equipment or branch out to other locations. Your funds could allow them to do these.
Once they get enough investors, they can get the necessary improvements. Similar to startups, those increase their income. Later, the company repays you with interest.
What are my investment options?
Figure out why you want to invest. Afterward, you may proceed with the next step investing for dummies. It’s time to build your investment portfolio with the following:
- Stocks – You buy a part of ownership in a company. These “portions” are called stocks. As the business grows, so does their value. What’s more, some of them even pay regularly as dividends.
- Bonds – It’s an amount of money you lend to your government or a company. It could also pay dividends. Once it reaches the maturity date, you get the original amount back.
- Bond funds – These refer to companies that invest in debt securities like bonds. Examples include mutual funds and exchange-traded funds (ETFs).
- Index funds – These follow a market index by investing in select companies. One of the most popular options is the S&P 500. Some like the Schwab S&P 500 Index Fund don’t require an initial investment.
- Real estate – Back then, you’ll need tons of money to invest in real estate. Nowadays, real estate crowdfunding platforms like Fundrise let you invest with just $1000.
- Cryptocurrency – At the time of writing, the crypto market is undergoing a significant crash. Yet, this could be a great time to start investing. You don’t need much to get started, especially during the impact. Note that bitcoin and other cryptos are complex options.
There are so many options we didn’t include. For example, we didn’t have hedge funds. These often require $500,000 or higher from investors!
How do I start?
Here comes the most critical part of investing for dummies. With all your goals and options laid out, you’re ready to start investing! The first step is getting rid of debts.
This lets you focus on investing. More importantly, you should be able to meet basic needs. Those come first before any investment. There are many ways you could reduce debts:
- Debt consolidation – It combines your unpaid balances into one with a lower interest rate. This could make payoff much easier. Although, make sure you repay your debt consolidation loan as soon as you can. It’s typically used for credit card debts and student loans.
- Debt settlement – A company may negotiate with your lender to reduce your debts. Note that debt relief is a high-risk method that should only be taken as a last resort.
- Do-it-yourself – You could try the debt snowball or debt avalanche method. The snowball method involves clearing lower debts first. The avalanche starts with the more significant balances. See which one’s better for you by clicking here.
Build an emergency fund
Everyone should have an emergency fund. It allows you to cover urgent and sudden expenses. For investors, it helps them cover potential losses. Here’s how to build one:
- Start a budget – This lets you reduce your day-to-day spending. Only buy things you need and pay your bills on time. You may plan your budget by following the 50-30-20 rule. This lets you save money much more straightforward.
- Get a side gig – It’s hard to find a job nowadays, let alone two. Still, try to find part-time employment nearby. Nowadays, online jobs let you work at home for extra cash. That could go to your emergency fund.
- Sell unused stuff – Many people have lost their jobs and businesses due to COVID-19. If you’re one of them, you could sell knick-knacks lying around in your attic. Then, you could hold a garage sale or sell them online.
Plan your investing strategy
After all that, you may write your investment plan. Use your budget to find out how much you’re willing to invest. Never use the money you’re not ready to lose.
Then, review your goals. They are a massive factor in your investing decisions. These change how much you need to start and other aspects.
If you want to earn big, you may want to invest in cryptos. Bonds are safer, but the maturity date may take 20 years or so. Your earnings depend on your choices.
Next, learn all about your chosen options. Study their terms and conditions, such as interest rates. Never invest in something you don’t understand.
Remember that financial markets always have risks. However, you could reduce them by diversifying. In other words, you should invest in different things instead of just one.
You don’t have to do everything yourself. Numerous tools could help you. For example, multiple websites offer free investment tips.
Even better, you could get help from the “Investing for Dummies 101” author Eric Tyson. His website gives free lessons. You might want to purchase his book as well.
Robo-advisors are online programs that help create portfolios. They check your investment goals then choose and manage suitable options. They charge fees, though.
Learn more about investing for dummies
How do beginners invest?
They should start by finding out their investment goals. These help them find the best options. Next, they must set aside the necessary funds. Afterward, they’re ready to invest.
How can I start investing with little money?
You could start with low-cost options like bonds. Because of real estate crowdfunding, you could also invest in properties with little money.
What investments should you stay away from?
Stay away from investments you don’t understand. If it sounds unclear, you’re better off finding alternatives. It’s best to listen to experts for sound investment advice.