By Andrea Stenslie - Norway
”The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit” is the definition of investing according to investopedia.com. Investing can help you build up your fortune in time and possibly allow you to increase your personal freedom and spending ability. However investing can also have its downsides. Check out the pros and cons below.
First, Where Does Investment Money Actually Go?
There are different ways to go about investing; you can put your money in stocks, bonds, mutual funds, real estate, or even starting your own business. In other words, investing means providing dollars now in exhange for a form of ownership in an "asset class" that you hope will be more valuable in the future.
Back Up, What are Asset Classes?
One of the ways to invest your money is in bonds, which is a fixed income security. Bonds go under the term that refers to any securities that are founded on dept. If you purchase a bond, you are lending out your money to a company or government and in return, they give you interest payments over a certain consistent time period (for example, each month, each quarter, or each year). This consistent flow of interest payments can lead to earning a lot more than you initially invest up front. Log into NextGenVest.com and take the 1 minute "Bonds 101" Certificate.
Now, Onto Stocks
Another investment you can make is in stocks. By purchasing stock (equity) in a company, you become a part owner of the business. This will also entitle you to vote at shareholders meetings and allows you to receive any profits that the company has set apart for owners. However, when you invest in stocks in a company, you are not guaranteed anything. In most cases, the only way you can make money is if the stock’s value goes up, which may not happen. Overall, stocks are riskier than bonds because you can lose all your money. Log into NextGenVest.com to get your "Stocks 101" Certificate.
Diversification? Let's Talk About Mutual Funds
The last investment type I will present is a mutual fund, a safer way of investing your money that does not require any specific expertise or experience, which is a must when investing in stocks and bonds. A mutual fund is a collection of bonds and stocks that is then combined with the money of other investors. Mutual Funds are run by professional managers who select specific securities for everyone's total investment. In theory, this is a better investment since you give your money to a professional instead of choosing the investments yourself. However, many mutual fund managers charge high fees and also don't outperform the stock market.
So It's Up To Me?
Yup. Now that you have some general information on different types of investments, it is your job to find out which type of investment suits you the best. The most important thing to remember when investing is to start out small and not take any big risks. If you are new to investing then do some research and start learning the ropes of the stock market before putting your money into any stocks.
Okay, So Where Do I Go?
You can set up what's called a "brokerage account", this is a fancy term for investment account. Examples of brokerage accounts are Etrade, Acorns, Robinhood, and Charles Schwab. Once you set up an account you can transfer money from your bank account and these services will place your investment orders.
To get more money smart tips, join our community at nextgenvest.com