Investment Tips for Beginners
Investing has always been one of the best ways to build wealth. However, you must always be prepared for market fluctuations of at least 50 percent during any year. For beginners, the stock market can appear to be a large and confusing entity so selecting the correct investment strategies is critical to success.
The first and most important step in investing for beginners is to determine your goals. This will help establish which investment type is best. There are two types of goals: saving and investing. Saving refers to short term engagement in a specific investment. Investing equates to a long-term commitment to a specific investment. Most savings goals should be in low risk accounts such as a CD or online bank. Most investment goals are in more volatile accounts that allow for a little risk.
Types of Investments
Once your investment goals have been determined you must find a type of vehicle that meets your needs. These include IRAs, 401ks, college savings fund, brokerage accounts and much more. There are a variety of investing plans that offer tax breaks and other perks.
Open an Account
Once you have pinpointed your investment goals and the type of investment you wish to make, you must open an account. This is as simple as enrolling in a 401K program to opening an IRA. The process simply involves providing information, signing a form and transferring money. It is always important to determine the type of investment.
Best Strategies for Beginners
One of the best strategies for first-time investors is to consider "target date funds" which diversify to a weighted asset allocation based on retirement date. What does that mean in plain English? Essentially this strategy involves a mixture of stocks, bonds and other types of investments that are riskier when you are young, and gradually become less volatile as you approach your target retirement date. Management of the portfolio is automatic so all you do is provide the money and let the fund manager invest.
Another strategy to consider is simply being average. By achieving average rates of return you can still obtain excellent profit. There are three primary strategies that offer average returns including:
- Investing in low-cost index funds
- Building your own index
- Buying easy, profitable real estate
Investing in Low-Cost Index Funds
As an alternative to purchasing shares of companies, you can put your money into a low-cost index fund like Vanguard 500 which mimics the S&P 500. This will allow you to have ownership in some of the largest companies in the United States. As a result you will be paying less than $1 for every $1,000 invested.
Building your own Index
On the other hand, if you prefer owning company stocks you can choose from a long-term blue chip organization and directly enroll in their stock plan. These plans are typically low-cost and automatically deduct money from your bank account at regular intervals to purchase shares of a business at little to no cost.
Buy Easy, Profitable Real Estate
One of the most popular methods of investment that offers decent returns is to purchase cash generating real estate in specific locations which you can monitor. This includes apartments, car washes, hotels, office buildings, rental houses, storage units and townhouses. This is one of the most common types because it is simple to understand. For instance, if you own a property and lease it to major companies like CVS, you will know exactly how much cash will be generated each month. You then compare that to the original investment and calculate the return.
Another excellent investment strategy for beginners is mutual funds which offer various levels of risk. The best aspect of these funds is they are low in transaction costs. Although this method is far from the most sophisticated, it is one of the easiest for a newcomer to the investment business. Most financial advisors will offer you a mutual fund with a description as to where your money will be invested across fixed income, stock markets and other assets
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