Easy investing for beginners

Introduction

Are you trying to find simple answers to your complex questions, like investing for beginners? And investing guide for beginners in simple words? Then we are here to help you.

In this Blog, we will explain investment in simple words that even kids can understand.

At the end of the Blog, you will have a clear understanding of the concept of investing,

In simple words, Investing is allocating some money to some assets in the hope of making a profit.

Benefits of Investing for beginners

Investing can be a great option to become wealthy if the correct decisions are made.

Warren buffet started his investing journey at the age of 11, but he still regrets his investing journey not starting earlier.

From this, we can easily understand that in investing, time is essential.

The simple concept in investing is to start as early as possible because compound interest is the world’s eighth wonder, and it can do miracles if you start early.

The main advantage of investing for beginners is that they can expect high returns as they are given more time for an investment to grow.

Setting Investment Goals for beginners

Before choosing to invest or looking for a guide like investing for beginners, we must understand why we need to invest and what the result will be.

Once one end goal is known, it is very easy to create an effective plan for investing.

The plan can be anything like creating an home, retirement, or emergency plan.

It is essential to remember the time while creating your investment plan, i.e., Short term and long-term plans.

One important thing to remember is that we should learn about risk or tolerance management while investing.

Risk management, in simple words, is “The capital you are willing to lose if things go against your plan.”

By following a simple plan of investing ( Goal and risk ), one can easily succeed in investing even if you are a beginner.

Types of Investments

The great benefit of investments is that you have many options. Some of them are

Investment in stocks

Investment in stocks is an all-time favorite of many investors because when you purchase a stock, you own a part of the company.

Stock investment can make you wealthy if you choose the right stock after a detailed analysis of a company.

On the other hand, there are high risks where one can even lose real money if the stock price starts to fall.

Example of Investment in stocks

After a detailed fundamental and technical analysis, let’s say you have decided to invest in a particular company.

Assume you have chosen Apple for your investment and planning to purchase 10 stocks of Apple for 57 Dollars each in 2020, which is an investment of 570 Dollars.

Assume after some years, when you check your investment, each Apple share’s price is $190. Your total investment value would be $1900. Hence $1900 – $570 = $1330 (Profit)

If things go in your favor, your profit after a few years would be $1330. Hence it is easy to make money in investment if invented after being well-researched.

Investment in bonds

Bonds are loans made by an investor to a borrower for a specific period with regular interest.

There are 3 types of bonds: Government, Corporate, and Municipal.

The current Government issues government bonds to raise capital, which is less risky and provides a fixed interest rate until it matures.

Corporate bonds are bonds a corporate company issues with a fixed interest to the investors. These bonds are highly riskier than government bonds.

The local Government issues municipal bonds financing public projects in return for tax-free interest payments to the investors.

Example of Investment in bonds.

Let’s say the Government issued a public interest notice where they plan to raise capital of $100,000 with an interest rate of 8% for 5 years, and interest will be paid annually.

In that case, you will get an interest of $8,000 annually, which is a great investment.

Investment in Mutual Funds

Mutual funds are investments where multiple investors invest their money to purchase a diversified portfolio.

The main advantage of mutual funds is that professionals in the industry manage them.

There are several types of mutual funds, such as equity, fixed-income, index, and so on.

Example of Investment in mutual funds

Let’s assume a box of notes costs around $100, but you have only $20 in your pocket, and the shop owner is ready to sell if you purchased a full box. In that case, you could partner with your 4 friends who have $20 each, making $100.

This way, you can buy and share the full box of notes with friends.

You purchase a diversified portfolio of stocks or other funds mutually where it has multiple investors.

Investment in Real Estate

Real Estate investment refers to the property where land or building is present and that can be used as a residential or commercial property.

There are 4 options for investment in real estate:

1. Direct ownership

2. Real estate investment trusts (REITs)

3. Real estate crowdfunding

4. Real estate mutual funds

Direct ownership refers to owning it completely to generate regular income through rental or property appreciation.

Real estate investment trusts (REITs) own revenue-generating properties like residential buildings, offices, or hotels.

REITs earn money through rental and property appreciation. They share the revenue with their investors.

Real estate crowdfunding refers to investing money in the estate through online platforms for debt and equity investments.

Real estate mutual funds refer to investments in the properties such as REITs and real estate operating and development companies through professional fund managers.

Building a Diversified Portfolio

The first question when we think of building a diversified portfolio for beginners is the actual need and benefit of building a diversified portfolio.

A diversified portfolio is important to lower risk and increase the chances of maximum returns on investment.

Diversified portfolio investments include stocks, bonds, real estate, and other investments.

Now let’s create a diversified portfolio where the first step will be determining the investment goal like long-term and short-term investment goals and the type of investments.

Once the type of investment is fixed in your mind, Choose the allocation of funds for each investment.

After the allocation of funds in each asserts. Review the portfolio and the overall fund allocations and correct if any changes need to be made.

Example of Investment in a diversified portfolio

I plan to invest in some assets, but the risk should be low, and the return on my investment should be high.

To do that, I will choose assets from different industries so that if one investment goes against my plan, the other can save my investments.

Assume I have chosen 5 industries: IT, the Auto sector, Health, Energy, and finance.

For diversification, I have to choose my allocations as 10% for the IT sector, 15% for the Auto sector, 25% for Health, 15% for energy, and 35% for the finance industry.

Investment Strategies for Beginners

Before considering investments in any assets, one has to build some investment strategies so that your funds are safe and the rate of return could be high.

Buy and hold is an investment strategy where one tries to buy and hold the asset for a certain time, hoping its value will increase over time.

Value investing is a technique where one will find stocks that are undervalued and their intrinsic value is low. Therefore holding it till it increases its value.

Income investing is another concept where investors invest in generating regular income, such as high-dividend stocks and REITs.

Dollar-Cost Averaging is a great technique where investors invest more when the share market prices are low and less when the market price is high.

Example of Investment Strategies for Beginners

Let’s assume that I am a regular investor in S&P 500, and when the market is low, I plan to buy 100 shares of the S&P 500, and when the market is high, I plan to buy 50 shares of the S&P 500.

This way, I can average the cost of the shares and make a high chance that the return on my investment is maximum.

Note: S&P 500 is an index fund.

Investing Tips for Beginners

Investment is one of the best methods to grow your wealth, but if you don’t have enough knowledge on investing for beginners, it could ruin your wealth.

We have 6 amazing tips for investment for beginners, and if you follow these tips, you could avoid your wealth destruction and become wealthy.

Always start with a plan and define all the goals you want to achieve through investments, the expected results, and risk management.

Always try to gain knowledge first about investment and learn more about investing for beginners and all the related knowledge about the industry because half knowledge is dangerous.

Before making any big investment, try to invest less and see if things are going according to your plans.

Investing is all about long terms, so while you plan, remember that the market may fluctuate, but you must be focused and disciplined.

Do not invest everything in a single stock; try to invest your hard-earned money in different industries.

Review all your plans and portfolio and ensure that you have made changes according to your knowledge gained from the guides, like investing for beginners.

Conclusion

Investing is a great way for many people worldwide to grow their wealth, but it should be done correctly, and educate yourself very well about investing for beginners and how investing works.

As we have discussed, diversification is essential in making a plan for investment. Always try to invest low capital initially and slowly increase it once you get enough experience and knowledge.

Try to monitor your portfolio regularly and analyze it, so it is not outdated and works best for you.

Investing may be complex, but it can be made simple if learned regularly.

We have tried to make the topic “investing for beginners” as simple as possible and in easy words that even kids can understand.