While most people are often struggling to make both ends meet or are forced to work almost 8-9 hours or more each day to get money. Some does precisely the opposite.
Apparently, these people seemed to hack the system and garnered the ability to gain money without working— they make money work for themselves, instead.
Welcome to the world of Investing.
What is investing?
Investing, in the context of finance, is simply the act of spending money in the hope of acquiring material outcome usually in the form of cash through profit or income in the future.
Time is Gold
When investing, it is almost always wise to start early.
Why? It’s because the art of investing can be considered as the eighth wonder of the world.
“Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pay it.” – Albert Einstein
Typically, when you invest, there’s a rate of interest (simple interest) that increases your money.
But compound interest is different in a sense that it includes the accumulated interest of the simple interest. Well, it is easier to view it as the “interest of the simple interest”.
Utilizing the power of the compound interest means that— the earlier you invest, the better chances you have to reap the fruits of that investment and the more returns you can potentially earn as the time pass.
You might want to invest this year, especially now that the stock market returns are expected to produce about 7% per year—adjusting inflation included.
How to begin investing?
- Familiarize yourself with different types of investments (asset classes).
Four primary categories of investments
- Property (tangible assets)
Properties are tangible assets, meaning that they take a physical manifestation. Buildings, equipment and land are some examples of tangible assets. It is important to note that buildings and equipment lose value or depreciate as time pass by, while land grows in value or appreciate as the time clicks.
Cash or Cash Equivalent Investments
Cash usually have the lowest potential yield out of the four investment types. However, it is the most stable and also the lowest risk investment among all of the investment types. It includes savings accounts, bank accounts and term deposits.
Stocks are fractions of ownership of a company or a corporation. Stocks increases in value as the company or a corporation flourish and earn a good amount of profit.
Bonds are the most typical case of a fixed-income investment. When you buy a government bond, you lend the government money with an understanding that the government shall return your money on an established date with a set interest rate.
- Select your preferred investment vehicle
After you have familiarized yourself with different types of investment, it is time for you to pick at which asset class you want to put your money on. It is essential to learn about investment risks; you also need to become aware of your risk tolerance. Different investment vehicle has different risk. So if you have a low-risk tolerance, consider allocating your money in a cash equivalent type of investment. Your financial position money also plays a role in where you want to invest your money. You typically need a massive amount of money to invest in property type of investment.
Michael started out with a degree in Finance Master, before devoting his time to tech and coding. He now works as a freelance journalist and video producer living in Berlin, Germany. When he’s not writing , he travels many countries.