Investing is important. Wise investments of your spare funds can be a great way to grow rich. These days, savings accounts offer very low interest and it is a waste to allow your money to lie in them. Based on your appetite for risk and your financial needs, you have various other investment schemes and options to choose from.
It is always safer to have a diversified portfolio, that is, to spread you money around in various types of schemes, so that the risks and returns get balanced out. The company you work for would have a 401(k) plan which is always a safe bet. In this scheme, they will deduct a part of your salary every month and give it to an independent financial source to manage the investment, so that you get a healthy return at the end of your tenure.
Types of investment
For those of you with greater risk-taking ability, stock markets or mutual funds can be a good idea. In stock markets, you can buy shares of companies listed on the stock exchange. Usually, good companies offer dividends along with a fair return on your investment. Dividends are not mandatory, but a lot of companies like to distribute their profits among shareholders as dividends.
Some companies prefer to reinvest the profits into expansion projects instead of declaring dividends. These reinvestments in turn should lead to further profits. However, the stock markets are unpredictable and a lot of people who dabble in stocks with the purpose of making some quick bucks may end up with losses instead.
Mutual funds are relatively safer investments, though they are also subject to market risk. Mutual funds are investments made in the stock market by financial managers with a fund collected from actual investors. There can be sector-specific mutual funds for instance those that invest in Pharmaceutical or IT or infrastructure companies only. Whatever be the mode of your investment in the markets, it is vital that you track these on a regular basis.
If the prices of your shares or mutual funds decline at a time when there is a slowdown in the economy as a whole, there is no need to panic and sell at a loss. The markets will quite likely bounce back to where they were or perhaps even better.
However, if the markets are strong and yet, the value of your mutual funds is on a decline, it could mean it is not well invested and it would be advisable for you to sell and move your money into something that will generate better returns. A financial consultant can advise you about the market situation and what types of investments will suit your needs best.
How should you start up on investment
Whether theyíre working in the business world or stay-at-home mothers, many people today are drawn to the risky allure of investments, which can mean either huge rewards or painful losses. While this is impossible to predict the fluctuations of the market with 100% accuracy, as you build your portfolio, you will learn to accept the losses and keep in mind the successes always waiting around the corner.
No one can control the market, but you can control what you invest in. Research products and know the businesses youíre putting your trust – and, more importantly, your dollars – in. One of the most common errors new investors make is jumping to invest in a hot stock from the previous year. Itís a common pattern for a market high to descend to a market low – right at the time youíre investing. This is not always the case, but it pays to invest in a strong stock rather than a fad thatís in one year and out the next.
It ís also important to know why you are investing in that particular stock. For instance, if you invest strictly to gain some momentum, when prices fall youíll know to drop out; otherwise, youíll sit there wondering whether to wait it out or cut your losses.
Ironically, while itís impossible to predict the market, investments are all about timing. Two of the most important decisions investors make are when to take profits and when to cut losses. When the market is up, some say itís best to run a profit – a risky choice that could mean a huge loss or an enormous reward. However, many prefer to take their money while the market is rising, in case a fall is on the way. When the market is down, nearly everyone agrees itís best to close out before it gets worse to avoid losing any more money, cutting your losses.
Most importantly, only invest what you can afford, and have a good reason for investing. Losses are a real part of investment, which means you canít afford too many rash decisions, especially when youíre starting out. Donít let the market determine your bank account unless youíre using it to your advantage, whatever that may be.
The smartest thing a new investor can do is study the market. Before investing in a product, look at its record. Donít jump into any investments – think them over first. Some good sources of information about investments include The Wall Street Journal Guide to Understanding Money and Investing (3rd Edition) by Kenneth M. Morris and Alan M. Siegel, The Real Life Investing Guide by Kenan Pollack and Eric Heighberger, and The Only Investment Guide Youíll Ever Need by Andrew Tobias.
If you stay well-informed and make careful decisions, the market can be an exciting tool. In the business world, anything can happen, and with the market highs come enormous rewards that are well worth the risks.
Other alternative choices
Joining an investment club could prove to be an exciting and enlightening experience especially for those who just starting their career in investment. Getting into the market early is crucial to your financial success and this also the reason why joining an investment club can be beneficial.
There are two prevailing types of investment clubs that exist at presentóthose investment clubs that are purely educational in orientation and focus more on teaching investment principles and make use of simulations rather than real money. The second type of investment club is an organization wherein club members invest pooled cash into the market.
This type of an investment club usually forms a legal partnership. Whichever type of investment club you may choose you can be assured of gaining some very useful knowledge on investment.
Starting an investment club
Whether or not you have decided to join an investment club your decision would still depends on your objectives as well as your investing personality. To know if you are eligible to join an investment club there are certain requirements you need to be qualified first and these are as follows:
- You are a novice when it comes to investment
Investment clubs are ideal for novice investors since it is a fun and educational way of learning the market. The assigned individual tasks to membersí helps in increasing the knowledge on investment. Likewise, the sharing of investment ideas from members also helps in understanding more the investment market
- You need a structure to help you keep on track.
Constancy is key for successful long-term investment endeavor and club membership is a great way of ensuring that you regularly invest. Club membership can provide you with sufficient experience should you ever decide to invest individually in the market.
- You feel that you need to diversify your investments.
Investment clubs help their members in spreading their investment among more stocks than they are likely would be able to as an individual investor. Also the investment risks are lessened to a large extent.
- You need to have the desire to contribute to the club as well as free time
Your contribution may not always be in the form of money although it is required from club members to contribute to a common fund. Your contribution may also be in the form of knowledge on investments gathered through research and shared with the other members.
- You are an investment person
This means that you believe in what investment clubs can do for you. And also you have confidence that investment club can provide you with the important knowledge that you need in order for you to have a successful investment experience.
- You like the social aspect of an investment club
Although, most of the monthly agenda of an investment club is given over to investment there is also the opportunity to make friends among your investment club colleagues.
If you still believe that investment club is what you need, then you will have to find a group that fits your investment principles. There are many reputable investment clubs which you may choose from or you could choose to start one up yourself. Have a look online for existing clubs or for tips on setting up your own.