Investing can be an essential component of any financial plan, helping your money to grow over time and helping you meet specific financial goals sooner.
How2invest can be intimidating. There are countless investment options and new terms and jargon to learn; as well as conflicting advice to sort through.
Stocks
Stocks (also called company shares or equities) are an integral component of many investors’ wealth-building plans, yet can be confusing for novice investors.
A share of a company’s stock represents partial ownership in its business and gives its owner, known as shareholders, claims on assets and earnings of that business. Stock trading occurs publicly via stock exchanges.
Beginners to investing should begin by taking an honest evaluation of their current financial status and setting short and long-term goals. Next, research various types of investments before selecting an online broker or robo-advisor that offers low fees, minimum deposits and investments that align with their goals.
Bonds
Bonds are an attractive form of fixed income investment that offer income, capital preservation and risk mitigation to investors. * For optimal returns, bond portfolios should make up part of any diversified investment portfolio.
Bonds act much like loans you might take out yourself: they represent government agencies, corporations or other organizations’ promise to repay what was borrowed with interest if necessary. By diversifying your portfolio with bonds instead of stocks alone, risks are decreased while more consistent returns can be realized over time.
ETFs
ETFs (Exchange-Traded Funds) are investment vehicles similar to mutual funds but traded on an exchange, similar to stocks. ETFs usually follow a market index but can also be actively managed – providing investors with flexibility.
ETFs can be an excellent way to diversify a portfolio, offering exposure across a variety of market verticals such as industries or more niche categories like company size or geography. You may even find ETFs that follow values-based indexing including environmental, social and governance (ESG) or socially responsible investing (SRI).
As with all investments, it’s essential to carefully consider your financial goals when assessing ETF options. Consider your risk tolerance before looking at management fees and trading costs before making your decision.
Mutual Funds
Mutual fund investing makes your job simpler by eliminating the need to select individual stocks or bonds for your portfolio, but you still must do your homework when selecting your funds. Consider factors like fees, asset allocations and objectives when identifying suitable funds.
Mutual funds offer diversification and professional investment management services you cannot get by investing directly in individual securities, plus economies of scale, liquidity and lower fees than individual investments.
When selecting a mutual fund, make sure to assess its long-term record rather than short-term returns alone. While it can be easy to be drawn into short-term hype surrounding certain funds, investing for the long term should remain your top priority.
Alternative Investments
Alternative investments refer to those outside of the traditional categories of stocks, bonds and mutual funds. This can encompass anything from real estate investment properties to private equity funds or even cryptocurrency investments – although how you get started may depend on which alternative you’re considering.
Alternative assets are frequently grouped together into managed portfolios grouped as funds or limited partnerships, often with minimum investment requirements and an intended lifespan of 10-12 years or so. Such funds offer investors access to illiquid investments such as hedge funds, private equity funds, alternative credit products (ACPS), REITs and distressed debt securities.
Alternative investments may provide investors with many advantages, from diversifying their portfolios and helping hedge against rising prices, to diversifying risk exposure – but excluding them from your portfolio could result in missed opportunities.