I Want to Invest and Multiply My Savings: Where do I start from?

Having woken up from slumber, you realize that the money you buried under the pillow or earning little interest within your bank account is unsafe due to this inflation factor degrading the value of the money. But where and how to start occasionally becomes a major issue. For any aspiring person who is new to the investment industry, this question must have crossed the labyrinth of his mind several times.

When I was preparing for the Learning to Invest unit, I borrowed books, used the internet search option, but there was no guide that would present in simple terms what the investment world was all about and what was available out there. For many, questioning seemed to get associated with the stock market right from the sound of it, which appeared to be tough and more of a guessing game like betting. However, it is worth mentioning that investment is not limited to the stock and it comprises a lot more; thus, it should not be referred to as betting. While some people gamble in the stock market, this is a much more logical way of buying a stock rather than throwing a dart at the list of stocks.

Here in this guide, I am going to provide you with a brief idea about some other types of investments besides the stock market and a few more important points to know before investing.

Before You Invest

But of course, there are some basic principles that a person should know before he goes for investments. These principles assist in making the right decision of the investment channel to take.

The Relationship Between Profitability, Liquidity, and Risk

Profitability: This has to do with the revenue that comes from the capital investment, better referred to as the return on investment (ROI). In the capacity of investors, our main aim is the maximum of profits as this brings the maximum of profitability for receiving the earning.

Liquidity: This is the type of securities that are traded with one form of capital investment being substituted by another capital investment without much change in the prices. When evaluating the liquidity of an asset, the closer one is to getting his or her cash, the better the stand is.

Risk: Financial risk in a more concise way can be taken as the likelihood of an event that in one way or the other has a destructive impact on the investment. Therefore, it is necessary to define the above risks as we attempt to minimize them with a view of protecting our investment.

These three aspects are interrelated. Apparently, it is possible to state that generally, an increased level of profitability is directly connected with an increased level of risk, while an increased level of liquidity means a lower level of profitability. These three components have to be balanced more in the context of investment decisions.

Time: Your Best Ally

In my talks to audiences, I have been saying that time is your best friend. Obama also confirmed this by uttering these words: “Time is the best ally.” It is time, which is the best friend of the investor since it fosters compound interest that enhances the earning capacity of an investment and at the same time ‘manages’ the risk aspect more proficiently. This is a situation or a scenario that permits the initial amount invested to earn interest in addition to other amounts that have earned interest.

If you want to learn additional information about compound interest, I have therefore written a complete article during which I give tips that accompany an Excel sheet where you can enter data and make projections about the earnings.

Diversification: Managing Risk

The third downfall of diversification is that much time is required to reverse the deterioration of risk. They also pointed out that the pattern of losses is inversely related to the investment horizon, which stems from the market’s resistance to losses. This does not mean that there shall not be a period of drawdown but as it is with long-term investments, they are usually riskier though with a higher prospect of getting back and even growing.

This approach distinguishes an investor from a speculator. An investor entails long-term planning where the idea is to create more of his/her savings, while a speculator aims at making profits within the shortest time possible, within a few days, weeks, or months at most, and this is very risky.

Never Forget About Taxes

Taxes should therefore be among the factors to be looked at when weighing the use of a particular investment tool. As to the matter of taxation, one can come across the fact that different types of investments are differently regulated in terms of taxation. For example, the taxation of pensions is different than that of investment funds or in the sale of other real estates. This would consider the state of affairs of every investment avenue regarding taxation in order to avoid being trapped when it is time to withdraw.

Determining Your Risk Profile

Warren Buffett, one of the world’s most renowned investors, famously said:

Rule number 1: Never lose money. Rule number 2: Never forget rule number 1.

Ideally, when one is investing, one would wish to earn some profit from the money which they invest although higher returns have a close connection with risks. This means that closer recognition of your risk ability can help you in having an excellent investment plan. Ask yourself questions like:

  • If you, being an investor, have invested in a share, stocks, mutual funds or any other investment tool which you expected to yield you some profit, how will you feel if today your investment has depreciated by 10%? What about 30%?
  • How potent am I economically to fuel this process?
  • Where am I placing my money and which time frame do I want to achieve it: short-term, medium-term or long-term?

Knowing this helps you maintain your risk tolerance level and guide you in the choice of investments you should make.

How Much of Your Salary Should You Invest?

Investing is very crucial in the whole economic process and the following is a description of how much of my salary should I invest? In this regard, Womack and Russo (2007) indicate that scholars in personal finance recommend that one should save and invest a portion of his or her salary, which varies between 10-20%. Of course, this is rather general, but it is more than justified by the desired financial status and everyone’s potential. The key is consistency. We are also able to save more money over a period if we deposit some of the money periodically into our account.

If you are the one asking what you can invest in, then congratulations, this means that you are at that stage of learning/researching what is available today that you can participate in the market and put your money in the hope of increasing wealth.

Summary of Different Investment Options

It is this simple plan below that captures the various investment plans and how they facilitate the achievement of your financial objectives:

1. Bonds

Bonds are the money debts that are in the form of securities issued by either the government or companies. Bonds are fixed-income securities; when you invest in a bond, you are buying the debt of the bond issuer – you are loaning money to the bond issuer, and in return, you receive interest payments and a restoration value on the bond at the end of the bond’s duration. Bonds are likely to be classified as fixed-income financial instruments and their major feature is the regular redemption of a fixed amount of US dollars or any other currency at a given time in the future, and the drawbacks are considerably fewer than those related to equities. But ordinarily, for the same amount, which they spend to place the order, they get lesser returns.

2. Stocks

The stocks of several firms are a show of ownership in an organization. Stocks focus on the securities that give a person a stake in an organization, meaning that an individual can profit from its sales and existence in the organization. Stocks, as we know, are comparatively less stable than bonds but they also have a higher return rate.

3. Investment Funds

These are the mutual investment funds that gather funds from people and then use the said amount to acquire securities. Funds may be managed where the fund manager buys the securities that should be in the fund, or an index fund where the objective is to mirror the behavior of an index. An association of stocks can pool money for investment and the selection can be professionally done, however, this comes with certain consequences.

4. Pension Plans

Pension plans are saving instruments that assist people in saving money for the time after they will be relieved out of working, that is, the time of retirement. It asserts they are tax privileged and further explains how systematic savings can be made to enable the funding of pensions. But they are, relatively, less liquid and can yield less – in terms of return – than the amount yielded by stock or bond investments, for instance.

5. Real Estate

Real estate is defined as the profession that entails purchasing houses and other forms of property with a view of selling or renting or subletting the same to third parties for a specified amount of money. Real estate can be done directly by buying the properties or indirectly by investing in REITs (Real Estate Investment Trusts). Real estate is normally considered a reliable and stable way to get standard income and capital appreciation but the actual investment process requires a lot of capital and this kind of security is comparatively less liquid when compared with other securities.

Ways Through Which the Manager Can Assist You in Your Investment

There is a process of diversification where an investor is permitted to invest in several securities, industries, and regions so that the risk is well diversified. The idea is that one should not invest or commit almost all of his/her money, or virtually everything to a certain business venture. In diversification, you are able to do away with the impact of poor-performing single investments since the portfolio is made up of many investments.

In conclusion, when it seems that the processes connected with investing are rather complex, it is possible to turn to an experienced financial manager. With the help of a good manager, they will advise you on which investment products are good for you depending on your tolerance for risk, goals, and capital. Being an investor, you should always make sure that the manager is transparent with the charges and is actually experienced in the field.

Start With Practical Goals

When you are investing for financial security, it is important to measure and analyze your expenditures, make projections, and keep adapting to changes. There is a possibility to multiply money and reach the desired level of wealth by being disciplined and following systematic ways.

How Much of Your Salary Should You Invest?

Investing is very crucial in the whole economic process and the following is a description of how much of my salary should I invest? In this regard, Womack and Russo (2007) indicate that scholars in personal finance recommend that one should save and invest a portion of his or her salary, which varies between 10-20%. Of course, this is rather general, but it is more than justified by the desired financial status and everyone’s potential. The key is consistency. We are also able to save more money over a period if we deposit some of the money periodically into our account.

If you are the one asking what you can invest in, then congratulations, this means that you are at that stage of learning/researching what is available today that you can participate in the market and put your money in the hope of increasing wealth.

Summary of Different Investment Options

It is this simple plan below that captures the various investment plans and how they facilitate the achievement of your financial objectives:

1. Bonds

Bonds are the money debts that are in the form of securities issued by either the government or companies. Bonds are fixed-income securities; when you invest in a bond, you are buying the debt of the bond issuer – you are loaning money to the bond issuer, and in return, you receive interest payments and a restoration value on the bond at the end of the bond’s duration. Bonds are likely to be classified as fixed-income financial instruments and their major feature is the regular redemption of a fixed amount of US dollars or any other currency at a given time in the future, and the drawbacks are considerably fewer than those related to equities. But ordinarily, for the same amount, which they spend to place the order, they get lesser returns.

2. Stocks

The stocks of several firms are a show of ownership in an organization. Stocks focus on the securities that give a person a stake in an organization, meaning that an individual can profit from its sales and existence in the organization. Stocks, as we know, are comparatively less stable than bonds but they also have a higher return rate.

3. Investment Funds

These are the mutual investment funds that gather funds from people and then use the said amount to acquire securities. Funds may be managed where the fund manager buys the securities that should be in the fund, or an index fund where the objective is to mirror the behavior of an index. An association of stocks can pool money for investment and the selection can be professionally done, however, this comes with certain consequences.

4. Pension Plans

Pension plans are saving instruments that assist people in saving money for the time after they will be relieved out of working, that is, the time of retirement. It asserts they are tax privileged and further explains how systematic savings can be made to enable the funding of pensions. But they are, relatively, less liquid and can yield less – in terms of return – than the amount yielded by stock or bond investments, for instance.

5. Real Estate

Real estate is defined as the profession that entails purchasing houses and other forms of property with a view of selling or renting or subletting the same to third parties for a specified amount of money. Real estate can be done directly by buying the properties or indirectly by investing in REITs (Real Estate Investment Trusts). Real estate is normally considered a reliable and stable way to get standard income and capital appreciation but the actual investment process requires a lot of capital and this kind of security is comparatively less liquid when compared with other securities.

Ways Through Which the Manager Can Assist You in Your Investment

There is a process of diversification where an investor is permitted to invest in several securities, industries, and regions so that the risk is well diversified. The idea is that one should not invest or commit almost all of his/her money, or virtually everything to a certain business venture. In diversification, you are able to do away with the impact of poor-performing single investments since the portfolio is made up of many investments.

In conclusion, when it seems that the processes connected with investing are rather complex, it is possible to turn to an experienced financial manager. With the help of a good manager, they will advise you on which investment products are good for you depending on your tolerance for risk, goals, and capital. Being an investment company, this must benefit you well. Ensure that the manager you are liaising with is open on his or her charges and is experienced.

Conclusion

Savings are actually the best way to ensure financial goals because investing is indeed a great way to make money. For such basics as the connection of profitability, liquidity, and risk, as well as mastering the sense of time, the probabilities to make rational investment decisions increase. Invest in different securities to reduce risk, especially in this case when you may require the services of a professional on the matter.

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