Investing for Beginner Investors
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Question: With the way the economic market is performing, I’d like to invest my funds better so it will earn more for me in the long run. I’m not a big fan of time deposits but I don’t have any understanding in investing. What can you suggest I get into that is secure but will grow my money? I am working in an I.T company. – Mel L.
Answer: Investing is one of the best decisions you can while your living. With it, you can accomplish your financial goals and protect your family’s future. You can develop your money and accumulate wealth as you make your money work for you.
It’s good that you are planning to invest your savings. Here are some differences between savings and investments. Savings are for short-term needs and for liquidity purposes. Investments are for the long-term. Savings are low risk and are insured by most major bank organizations. Investments, on the other hand, are riskier and are not protected by any insurance. Savings give low returns and may not be a better strategic move since inflation can wipe out your savings. Investments, meanwhile, may give relatively higher potential returns, and may be able to beat inflation.
Putting your money in a savings account in the bank will keep your money secured, but your money pot will grow very at a snail’s pace. If the interest rate offered is lower than the rate of inflation, it may even lose its purchasing value.
Thus, if you want to exploit the earning potential of your money, you have to have investments. Some people who have carefully put aside money for investments in their younger years get to live on interest income during retirement. You can be one of those persons if you start investing while you’re young and make wise investment decisions.
Available investments
There are many types of investments you can get into. Aside from cash deposits (such as time deposit in the bank), you can consider debt instruments, stocks or equities, real estate, or a business venture.
Debt instruments come in the form of bills, notes, and bonds issued by your government or by companies. In effect, when you put your money in a debt instrument, you are lending money to the issuer of the debt instrument. In exchange, the issuer will pay you an approved amount of interest periodically over a specified term, and will pay you the full amount of the principal when the instrument matures. Bills are due within a year and are also called money market instruments. Notes mature in a year or up to 10 years. Bonds mature beyond 10 years.
Debt instruments are good investments for starting investors since the risk is not that high as compared to stocks, real estate or a business venture. You are guaranteed a fixed income over the term of the instrument, unless the issuer defaults, which does not happen often anyway. Before investing in debt instruments, study the terms thoroughly and get only those given a high rating by independent credit rating agencies such as Standard & Poor’s.
Stocks or entities let you “own” a portion of a corporation and give you a claim over its earnings and assets. You can invest in stocks through a broker licensed by the local stock exchange. Since stocks are actively traded daily in the stock market, prices fluctuate and it’s possible to earn today and lose tomorrow. The risk is very high, but the potential to earn is also very high when the stock market is up. In the long term, stocks have proven to be a good investment for many people.
Because of the volatility of stocks, you may want to defer getting into it until you have become more experienced in investing. Also, consider investing in stocks if you can hold on to your investment for the long term.
Real estate is worth investing into for the long term as well. But bear in mind that there are many costs involved, from annual real estate taxes to maintenance costs. Real estate carries with it a medium risk. You may earn or lose depending on the performance of the real estate market.
A business venture is also a form of investment. However, the risk is high, as not all businesses earn over time. There are many factors to the success of a business. One must not only have enough capital; you must also devote time to growing it and ensuring that it will meet market demands.
Since you are working full time, doing business is not feasible at this time, unless you want to take a less involved role in operating it. Real estate may take a large amount of resources. And since stocks may be quite complicated for the first time investor, we thus recommend that you invest in debt instruments.
You can directly invest in a specific debt instrument. Check with your bank to decide what debt instruments they can offer. Oftentimes though, the capital needed may be high.
An easier way is to invest via a pooled fund, such as a mutual fund or a unit investment trust fund. These funds gather the small investments of many investors and the fund manager puts the whole fund in a number of debt instruments. (The funds may also invest in stocks only, or a combination of stocks and debt instruments. You will be advised of the nature of the fund before you invest.)
Ask about mutual funds from mutual fund companies, or unit investment trust funds from banks. With funds, you can easily invest and after a short holding period, you can liquidate your investment should you need to, subject however to the market price at the time of liquidation.
Remember that investments should be viewed as a long-term approach to build up wealth. The more you leave it alone, the more it will grow and work for you.
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2 Responses to “Investing for Beginner Investors”
I believe people should combine savings and investments. We sometimes need some money for immediate financing and its good that we put some money into savings. But I agree that in the long run, people should invest their money in a wise way and hope that in the future their money will grow with them.
By
Joel Carry (Who am I?) on Jul 13, 2008
Hi Joel,
Agree. The article doesn’t talk about putting all your money in investment but emphasize on investing it if you want to grow it. Thanks for the comments and I hope you subscribe to my RSS to get new updates from this blog.
By
moneyexpert (Who am I?) on Jul 13, 2008