Principles of Investing: How to Invest Money Wisely

Figuring out how to invest money is no mean feat. The internet has tons of information about investing, coupled with real-life stories of how people invested in certain ventures and reaped great rewards. If you are smart enough, you will know that there are thousands more who invested in similar ventures and did not succeed. This is what confuses most people who are thinking of investing at some point in their lives. The question that leaves them wondering is, “which is the perfect investment, and how do I get it right?”

Which is the perfect investment?

Honestly, there is no ideal investment, and if it existed, we would all be scrambling for it. The risk and uncertainties that investments come with are inevitable, but people still manage to maneuver through them and reap great rewards. In this piece, we will highlight some vital things surrounding investments, so that you are better placed to make wise choices whenever you decide to make the bold move and invest. Read on;

What is an Investment?

An investment is an item or asset acquired to generate income. It can also be an activity you engage in and spend money with the hope of reaping profits. Investments are defined in both economic and financial perspectives. In an economic sense, it is the purchase of goods that are used in the future to create wealth. In a financial sense, it is a monetary asset bought with the idea that it will provide income or be sold for a higher in the future. Investments entail money, time, and effort which are expected to yield a greater payoff in the future. In most cases, an investor puts their money to work on a project which should generate money regularly for a given period or a lump sum at a later date. Investments are diverse and include the purchase of bonds, real estate property, and shares, among others.

Types of Investments

The word investment is commonly misused, and you can hear people claiming that they invested in education or personal items. Such things are not investments, and this part will look at three main types;

Ownership Investments

This is what most people understand when you mention the word. It contains the riskiest and most profitable types of investments such as;

• Stocks – This is investing in the partial ownership of a company. You are entitled to a part of the company’s value depending on how much shares you have, and this investment can yield returns when you choose to sell the stocks after they increase in value.
• Business – This refers to opening an enterprise and offering goods or services to customers. This is a tricky investment since it requires more than money. Business ventures are highly volatile depending on the niche, and they can either yield high returns or fail miserably.
• Real Estate – This refers to land, houses, and apartments that you buy to rent or resell at a higher price.
• Precious Objects – These are high-value collectibles such as vintage paintings, gold, and antique cars. These items are scarce, and their price quickly appreciates over time.

Lending Investments

These opportunities make you take the role of a bank. The risk involved is lower when compared to the ownership ventures with the returns being lesser. For instance, a bond offered to a firm will generate a fixed amount over time while shares invested in a company can triple in value or depreciate heavily leaving the company bankrupt. Examples are;

• Savings account – You can call your regular savings to account an investment since you give the bank your money which dishes out loans and pays you some interest. While the return is meager, it is virtually risk-free due to FDIC enforcement.
• Bonds – The word bond is a general term that refers to several investments such as treasury bonds, international debt, and credit default swaps, among others. The nature of risk varies with the type of bond in question, but they yield lower returns than ownership investments with significantly reduced risk levels.

Cash Equivalents

These investments are as good are cash since they are liquid. The most notable example of such investments is money market funds which have changed in recent years. MMFs are a form of mutual funds that invests in liquid instruments such as cash equivalent securities for a short period of typically a year. They are highly liquid with low risk. Read our reviews on the best financial services available right now:

• M1 Finance Review

Savings vs. Investments

If you are thinking of investing, the chances are high that you wondered where and when you should start. Investments need money, and most of the ones we wish to venture in require a lot more than we can raise. This way, most people opt to save and accumulate a significant amount before they invest. Savings and investments are entirely different things, and they play different roles in your life. They are still related, and it helps to understand the differences and how savings can be an excellent foundation for your investment.

Savings

Saving money is the process of putting aside in an extremely safe and liquid place. Most banks offer savings accounts where you are restricted from making withdrawals regularly but can make a huge one when you need it. Always have a savings account so that you get a place to revive your life in the event of a financial crisis.

Understanding the Relationship

Investment has been explained, and savings should almost definitely precede them. This is the foundation where your investment will grow on, and the larger the savings, the higher the chances of having your investment surviving through the harsh times. When saving, try to abide by these two rules. First, ensure that the savings are sufficient to cater for all your expenses such as insurance premiums, mortgages, utility bills, and food for about six months. This way, if you become jobless or your investment does not generate as much as you expected, you have enough time to strategize. At some point in your life, you will need a tremendous amount of money, say when you want to invest. Your savings should help you to pay the down payment or at least offset the investment so that you avoid borrowing to invest in a risky venture.

Tips for Picking the Right Investment Opportunity

You have saved a considerable amount of money and want to invest. You have a lot of options and cannot seem to find the right one. Here are some tips for picking the best one;

Set Your Goals

Investments are serious ventures, and you need proper goals before you pick one. What do you expect from the investment after a specific time? You will want to generate as much profit as possible, but you need to know how you will achieve this. Such questions will give you insight on whether you will want to go for the long- or short-term investments and the level of risk you are willing to handle. Well, you would typically want to deal with investments that have zero risks, but the more the risk, the higher the possible rewards. Investments are a matter of picking a compromise and always analyze your options critically. In the process of setting your goals, bring your personality into the equation as it helps to pick realistic ones. It is easy to look at the Bill Gates and Elon Musk inspirational stories but does not get carried away and chew more than you can swallow. This is a common reason why most investments fail. Make use of the SMART model to set realistic and measurable objectives before picking an investment.

Develop a Plan

It is easy to venture into an investment and then change your mind midway once you find another one that seems more attractive. Jumping ship is suicidal when investing and develop a proper plan that you will follow to the latter. This will reduce the urge to buy and sell investments without proper thought. Your plan is an actionable guide that will help you to achieve your objectives. Examples of items that should be well covered in your plan include the types of investments that fit your goals, your timeframes, diversification plans, and returns needed to meet the objectives. Check out our comparisons of the best financial services out there:

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How Much Can You Invest?

Money is integral for any investment, and it is a huge determining factor of what you can invest in. You can source for funds in many ways, and the best scenario is when you have some money set aside in your savings account, or when you land a windfall from an unexpected source. Borrowing is an option primarily if you cannot raise the amount you need, but the income generated might have to repay the loan before you start earning. Note that you do not have to accumulate the whole amount needed for investment as you have several options. You can partner with other investors, apply for a fund, or even sell an asset to fund the venture. The important thing is to have the amount you need to be documented as well as the procedure of sourcing for it.

Research Extensively

We are lucky to live in a digital era where information is all over the internet. This makes it easy to find out more about certain investments before picking the right one. Dig and understand most of the critical things about investments before committing yourself. Understand the benefits and risks at stake, so that very few things surprise you along the way. Focus mostly on the risks since they are the biggest threats to your investment. Look at the rewards and if possible, analyze how you can use them to improve your life or reinvest in the venture to make it bigger and better. Engage people who have invested in similar ventures and get real-life experiences of how they work. Look at some of the strategies employed by the successful investors and learn from them in a bid to forge a successful investment path. Once you get all the facts at hand, it becomes easier to pick the right venture as you will have a clear idea of what you are signing up for when selecting one.

Manage Risks Diligently

Risks are inevitable, and the best thing to do is to manage them well. Investing in a single venture is useful for generating big profits, but if it fails, all your efforts won’t matter. Keep your portfolio diverse and try to invest in different things. This manages the risks effectively since others might fail, and others will do well. If they do well, the better it becomes for you since you get an excellent combined income. You can invest diversely but in the same niche. For instance, if you are buying stocks, do it from different companies in many countries so that the probability of them depreciating at the same time is significantly reduced. Diversifying risk helps to preserve your capital so that you can quickly shift during turgid times and find better investments. Choosing a suitable investment is no mean feat and do not be too excited and pick one without proper scrutiny. Weigh your options and look at what suits your personality and schedule. Picking an investment is the first step of many, but if you make the right choice, the rest should not be too difficult for you. Check out guides on investing a certain amount of money:

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Investing in Real Estate

Real estate is one of the simplest ways to invest since the concept is straightforward. The aim is to put money in property and allow it to appreciate so that you get more in the future. The returns from any real estate investment should be substantial to cater for the risks involved such as taxes, maintenance costs, and insurance among others While real estate investments are conceptually simple, there are a few things involved, and it helps to be informed about them before taking the leap. Simplicity does not automatically mean it is easy since mistakes can lead to detrimental consequences.

Ways Real Estate Generates Income

When you choose to invest in real estate, you can gain your returns in a couple of ways which are;

Appreciation of value

This is when the property increases in value over time due to the change in the market or the land around the property becoming scarce. Real estate investments are known for their steady appreciation over time, and this makes it attractive to potential investments. Investing in real estate for appreciation purposes is a risky venture compared to when you do it for cash flow income.

Cash flow Income

This form of investment entails buying a property such as a condo and operating it. You can rent out units from the apartment to willing clients and collect rent monthly or quarterly based on the agreement. Cash flow income can be obtained from a wide range of real estate investments such as apartments, commercial offices, storage units, and rental houses, among others.

Affiliated Income

This refers to money earned by experts in the real estate field who take advantage of specific scenarios to gain income. Real estate dealings are numerous, and people who facilitate these processes are the ones who earn this type of income. Examples of such people are brokers who make money through buying and selling the property. Real estate management companies help investors to run their property and charge a specified amount. This type of income is easy to understand since it is billed as a percentage of the revenue generated by the units.

Supplementary Income

While such ventures might not be real estate investments per se, they rely on them, and investors can use them to make money. They include vending services in apartments and malls or laundry services, among others. They are small businesses within the large real estate investments that let you earn money from the customers within the property.

Types of Real Estate Investments

Real estate is a term that refers to a broad class of assets. If you want to develop, flip, or own property, ensure you understand the different types and how they can help you to achieve your investment goals. Read on;

• Residential – These are structures such as houses, apartments, townhouses, and condos. They are units where people rent to live in and the time they stay depends on the agreement. Most units are leased out on a yearly contract.
• Commercial – These buildings are leased out to companies for business purposes. They include office buildings. Most of these units are let out for multiyear leases which leads to stable cash flow for the owner.
• Industrial – These are structures that are let out for manufacturing purposes such as warehouses, storage units, and special purposes buildings. They fetch a huge fee and offer an opportunity for one to gain supplementary income.
• Mixed Purpose – In recent years, investors are coming up with mixed purpose structures which are meant to offer the much-needed flexibility in today’s markets. Examples are complexes that contain residential units, commercial and retail units all under a single roof.

Advantages of Investing in Real Estate

Easy to Understand

When compared to other investments, real estate stands out as one of the easiest to comprehend. Most of them rely on simple concepts, and the process which you get returns on investment is abstract. With real estate, you are mostly involved in buying the physical property and either selling or renting out for a profit.

Can be Improved

One of the downsides of most investments is the fact that you have minimal control over appreciation. This way, you have to rely on market factors and hope for the best. While these factors play a massive part in the appreciation of your property, you can improve it and change things relating to the physical estate and tenants. With proper management, you can improve the value of the investment over time.

Cushion from the Effects of Inflation

Real estate is one of the few assets that react proportionally to inflation. This means that as inflation rises, the house value and rent increases as well. This way, it is advisable to give out annual leases on the property so that you are not stuck to the old rents even when the market rates increase.

Potential of Huge Rewards

Real estate investments exist in a market plagued with many inefficiencies. There is no set price for the property, and valuations are flawed by opinions and several market factors. While this might look like a downside, it is a potential for getting high profits. Investors who take time to research can exploit these loopholes and find great bargains in this area.

Investments can be Financed

You can invest in other ventures through debt, but it is risky. With real estate, borrowed money is used to purchase a hard asset, and this makes it reasonable to offset an investment with a small amount. Hard assets appreciate year after year, and the cash flow can help to repay the debt.

Disadvantages of Investing in Real Estate

High Transaction Costs

The transaction costs involved in buying property are relatively higher. This applies to huge investments as the transaction costs could be as much as a percentage of the overall value of the asset. You might be better off using the services of a real estate agent who will also charge you a commission and increase the costs further.

Low Liquidity

Most investments that offer liquidity allow you to sell and buy within seconds and make profits. Real estate does not provide liquidity, and it is common to come across people who have been trying to sell a house for several months without succeeding. If you want to sell a piece of property quickly, you will have to do it at a lower price, and this makes it hard to play around with such investments. The significant amount needed to buy them makes cash buyers very few in the market, and those who might be willing to buy will offer to do it through deferred payments.

Maintenance Costs

While you can improve real estate assets, you will need to incur high costs in keeping it up to the required level. These costs do not necessarily improve the asset but maintain it at the required state. You will need to fix leaky roofs, repaint the walls and repair HVAC systems to name a few of them. Legal issues also come into play, and you have to pay for taxes and insurance of assets. If you sum up all these, you will find that maintaining real estate assets will cost you some amount which ends up reducing the amount of money you get at the end of it all.

Investing in Stocks

Investing in stocks is one of the most profitable ways of building wealth over time. If you look at the Forbes list of the wealthiest Americans, you will find that most of them attained their status because they own shares in various corporations. The stock market can be confusing, and the chances are that you might have seen various stock listings and have no idea of what the figures mean. This complexity of the stock market scares many investors, but you can always learn and know how to invest in it.

How Are Stocks Created?

When a company becomes public, anyone can purchase shares in them and own a stake in it. Companies can choose to go public for various reasons, such as the need to raise more money or giving the owners good profits and an exit path. They allow investors to earn returns on their investments over time. They separate the ownership from the management of a company and people who have no interest in a company or what it does can still invest and gain meaningful returns. As an investor, you buy shares with the hope that the firm’s value will grow over time, then you can resale the shares at a higher price. Aside from that, the profits obtained every financial year are distributed to the shareholders in various forms. One common way is through dividends which are essentially quarterly payments. Profits can also be offered in the form of share repurchases which increase the value of stocks.

Types of Stocks

• Common Stocks

These are the common ones everyone talks about. They are entitled to their proportionate share of profits and losses. The shareholders elect the Directors Board, which decides to either retain the profits gained or distribute them as dividends.

• Preferred Stocks

With these, the shareholders need to be paid out first at a predetermined time. These are top priority stocks which are paid out first before the common stocks can receive their share of dividends. In case the company becomes bankrupt or liquidates, people who hold these stocks stand a higher chance of recouping their investment as opposed to the common stockholders.

How Investing in Stock Works

Assume that John Doe wants to open a store and needs $10,000 to set up everything. He sets a company and divides it into 1000 shares of stock each worth $10. If he sells all these shares to his family members or friends, he will get the $10,000 needed to get things running. This way, he will have raised the capital required to start the business by selling shares. After a year, the business rakes in $6000 after taxes. Every share will be entitled to 1/1000th of the profit, which is $6 per share. This is referred to as EPS on Wall Street. John can pay out this amount to the shareholders or hold a meeting with the Board of Directors and decide how best they should use the money. The most common thing to do is to pay out a portion of the EPS and use the rest to purchase some stock or improve the business. As the store grows, John might want to make it bigger and invite more people to but shares apart from his family members and friends. He will have an Initial Public Offering if the company is large enough and get these stocks on the stock exchange market. The figures mentioned above are small to help you understand, but companies have stocks to the tune of millions. A couple of years back, McDonald’s had over one billion shares of common stock valued at around $60 per share. Today, a share costs slightly above $205.

Tips for Investing in Stocks

• Plan Well

Just as it is with any investment, ensure that you plan and set your goals before investing in stocks. Do you need your money back in six months, five years or ten years? Have your expectations listed so that everything you do is based on these targets. By knowing how much money you will need in the future, it is easy to determine the amount you can invest. Your portfolio’s growth depends on the capital you invest, net earnings per annum, and the investment periods. With a proper plan, it becomes easy to invest in an organized manner to achieve your goals.

• Understand the Risks

Your risk tolerance is an important thing to analyze when buying stocks. We have seen huge companies going down within a short time, and anything is possible with stocks. Some companies are in risky niches where there is a probability of gaining massive profits within a short time, but the risks are also enormous. If you have a higher risk tolerance, you could try out these markets but if it’s a bit low, opt for the stable markets that have a lower return.

• Deal with the Basics

Investing in stocks is not very simple, and you need to understand a lot before you can do it. Do not be in a hurry to make an initial investment and conduct extensive research. Understand the definitions of the various financial metrics such as the earnings per share, return on equity, and compound annual growth rate, among others. Experts conduct fundamental and technical analyses, and you need to know how they work and their differences. There are different types of investment accounts that you need to be familiar with. In a nutshell, the world of stocks is a whole new one with several things that should be understood before investing.

• Diversify

A good way to manage your risks is by diversifying your stock investments. But stocks in different companies sometimes in various companies to avoid cases where all your investments go down the drain.

Advantages of Investing in Stocks

• They Benefit from Growing Economies

When an economy thrives, jobs are created, and people get more money and can afford to but commodities. This boosts consumer demand and companies can make more, increasing the value of stocks.

• Liquidity

The stock market might be complicated but buying stocks is not. You can purchase shares within minutes through a broker or on the internet. Once you set up an investment account, buying and selling are easy. Stocks are very liquid, and you can turn them to cash with low transaction costs. This comes in handy when you are hit with an emergency and need money fast, but you might have to take a loss.

• Diversified Income

By investing in stocks, you can make money in two ways. Most investors buy them at a low price and sell at a high, but this applies in fast-growing industries. Others take advantage of the long-term growth and buy low and then wait for a long time before selling high. You can also use them as a steady source of income by buying shares of a company that pays dividends.

Disadvantages of Investing in Stocks

• Volatility

With stocks, your investment depends on how a company fares on. If it performs poorly and investors start selling their shares, the prices will go down, and you can lose a lot of money. If you do not want to lose the initial investment, you should buy bonds. With these, you get an income tax break if you lose money on stocks. However, the downside is that you need to pay the capital gains tax when you gain profits.

• Needs Extensive Research

The stock market is a whole new world, and you need to spend a lot of time learning about it if you are to invest successfully. Unfortunately, most people do not have the time to learn, and this is what scares many investors away from investing in stocks. It is a problematic venture for people with limited or zero knowledge of financial statements, reports, and business matters.

Investing in Entrepreneurship

Entrepreneurship is the process where one opens a new business and runs it. This business will produce goods and services to customers at a specified fee which should be higher than the cost of production for one to get profit. Here, you need to identify a gap in the market or give goods and services that help to solve a need. Entrepreneurship is an active form of investment that entails several processes an opposed to the other two mentioned above.

How Do You Start a Business?

Setting a business involves various things mentioned below. Read on;

Establish the Legal Structure

The term ‘business’ is broad, and you need to know which kind of entity you want to form from a legal perspective. Businesses scale up after some time, and it helps to make the correct choice when picking one. Here are the four main types of legal entities to consider;

• Sole Proprietorship – This is the smallest entity you can open, and here, you are the business. You are personally liable for the taxes and debts when you ask people to invest in the entity; they are primarily investing in you.
• Limited Liability Company – Here, you are not responsible for any financial liabilities of the company. The LLC is a separate entity from the owner, and the process of setting up one will cost you some amount and involve a few hectic processes. LLCs have several tax advantages and protect the owners from the shortcomings of the business.
• Partnerships – This is a business where at least two people share ownership. Here, the owners contribute to the various aspects of the company and share the profits and losses.
• Corporation – This is the largest entity you can set up, and it is an entirely separate legal entity from the owners. It has the rights and responsibilities any individual holds, and it can enter into contracts, borrow money, own assets, and pay taxes.

Pick a Business Name

Now it is time to pick the business name. It might seem like a fun activity, but it involves a lot of paperwork and several legal processes. Your business name will have a significant impact on its success down the road, especially when it comes to brand management.

Secure the Legal Requirements

Your business should be on the right side of the law. Get all the permits and licenses needed for it to operate as specified by the federal and local statutes that apply for your case. They also depend on the type of activities you will engage in and find out all the licenses you need to have for your specific type of business.

Set Mission and Goals

While the law won’t force you to do this, it helps if you want to be successful. What does your business stand for? How will you want to conduct your activities? A vision statement says what your company aspires to be when the mission is achieved. A mission statement explains the purpose of the business and a brief description of its main objectives. Take time when developing these as they will govern everything you will do when the company starts running.

Develop a Marketing Plan

A business succeeds when it can sell a significant amount of what it produces and the more the sales, the more it grows. This way, it helps to set up a marketing plan that will inform customers what you are offering and why it is right for them. Look at the people who might be interested in what you are selling and those that might turn out to be promoters of these commodities. The internet has simplified marketing processes, and the competition for online clients is growing exponentially. Have a rough idea of your marketing plan and allocate the resources for this so that what you offer gets sold.

Tips for Succeeding in Entrepreneurship

Entrepreneurship is one of the most challenging ways to invest your money. A considerable percentage of businesses fail even before they start, and many others stagnate for many years leading to frustrations for their owners. The investor who starts the company is responsible for the way it runs, and they need to set things right from the word go. Here are some tips for becoming a successful entrepreneur;

• Be the Leader

It is crucial to position yourself as the leader of the business. Most of the employees will look up to you and always give them the impression needed to make them work harder. Your energy should resonate throughout the business, and this way, people will always know what to do and strive to do it in the best way possible.

• Be Organized

Organization in business is vital for success. Do not deal with things on a day to day basis but try to have a plan that should be followed. This will help you to complete tasks within the required time. An example of doing this is preparing a to-do list every day so that everyone knows what is expected of them. It is easy to forget some crucial tasks if you are not organized, and this can easily make a business fail.

• Keep Records

Always keep detailed records of everything you do. You will be better placed to gauge the financial position of your business through these records and point out any potential challenges. When the time to review your business comes, these records will come in handy since you cannot remember everything that happens within the company.

• Do Not Ignore Competition

Your competition can make the business fail or help you to improve. Keep tabs on what your competitors are doing and use this information to stay ahead of them. Learn from some of the successful strategies they have implemented and always strive to be better than them.

• Understand the Risks

You will need to take risks if your business is to grow but do not do it blindly. Some risks can lead to severe consequences and always analyze them before taking any. Look at the potential benefits and worst-case scenario before making any move. Calculated risks are key for growth, and you will need to take them along the way.

• Reinvent

Do not bask in the immediate success and get comfortable with your current status. You need to reinvent and be creative if you are to maintain your existing customers and attract more. You should be open to new ideas and taking different approaches to your operations if you are to stay in business.

• Deliver Quality

You can hire the best marketing experts in the world, but the bottom line of retaining customers is the quality of goods and services you provide to clients. Strive to deliver top quality products and services at all times, and people will be more inclined to buy from you. Do not compromise on this in a bid to cut costs as it could backfire on the business.

• Embrace Digital Marketing

The internet had made things easier for small businesses that struggled to compete with the established industry giants when conventional marketing was still the norm. Digital is the way to go and start to put your name out there from the word go. With a proper digital marketing campaign, you can easily break the barriers and get people to express interest in your goods and services at a bargain.

Advantages of Investing in a Business

• You Decide Which Sector Suits You

Once you decide to set up a business, there is no limitation on the business niche you can invest in as long as it is legal. Do you want to set up a retail store? A supermarket? A grocery store? An auto shop? You have the liberty to do anything, and this makes it easy to pick a niche that you are naturally passionate about.

• More Independence

By investing in a business, you become your boss and can even quit the regular white-collar office jobs. This is especially applicable if you play an active role in the business and want to oversee its day to day operations. You get to work as long as you want, as long as it suits the business.

• Potential for Great Rewards

While the risks of investing in a business are imminent, most multinational companies started as small entities and have evolved to become world-beaters. There are no limits to how much your business can rake in as long as you have the vision to grow. The more you sell, the more you earn, and as long as you market your commodities well and maintain the desired quality levels, sales won’t be a big problem for you.

• Flexibility

The business world is changing, and you can always venture in new areas when you see opportunities. We have seen businesses such as Amazon that started as eCommerce stores venture into cloud services and technology device manufacturing fields in a bid to leverage the opportunity. With a company, you get this free will and do not have to stick to the same old things you started with.

Disadvantages of Investing in a Business

• You Won’t Earn as Much In The Beginning

Investing in a business requires a great deal of patience. While a few entities have found immediate success, this is not always the case. Millions of companies exist out there, and it takes time to get people to know your business and start building a group of loyal customers. This can be a challenge for people who are not patient since resources might start dwindling and become a challenge for the investor.

• Challenges and Risks

You cannot deal with all the challenges your business will face or cover all the risks involved. Business face competition from established entities, mismanagement of funds by employees, lack of resources, lack of professional staff, and inefficient strategies, just to name a few. As an investor, you will go through a lot of stress to maintain and grow your business as opposed to other forms of investments.

• Your Working Hours Won’t Be Very Flexible

While investing in business makes you independent, you might be required to go an extra mile most of the time. A few entrepreneurs find success in working for a few hours, but most of them work longer and harder than the average employee. Your business won’t grow by doing the bare minimum, but the advantage is that you have the flexibility of scheduling in those work hours.

• No Guaranteed Returns

While businesses could offer you significant returns, this is not guaranteed at all. It all depends on the effort you and members of staff put in as well as other market factors. You have the onus to make it happen, and it is up to you to chase the paycheque. Customers are limited, and every other business is struggling to get hold of them, so if you down your tools, you won’t earn anything.

Other Types of Investments

Bonds

These are loans an investor gives to a corporation, federal agency, or government in exchange for interest payments over the specified amount plus repayment of the principal amount. Some types of bonds include;

• Treasuries.
• Corporate bonds.
• Municipal bonds.
• Agency bonds.

The risk involved when investing in bonds is when you want to sell them before the maturity date(which is usually a lengthy time), and you are forced to do it a low price. However, they offer a good way of investing passively, and the risks are relatively minimal, depending on which type of bonds you invest in. Treasury bonds are considered a very safe form of investing.

Mutual Funds

These are pools of money collected from many investors that can be managed actively or passively. They are operated by a fund manager who carefully picks companies and other investment instruments to channel these funds into. They try to beat the market by picking the investments that will appreciate steadily. These funds are mostly invested in bonds or stocks. They can carry the same risks taken by the specific investment instruments, but they are greatly diversified, reducing the individual risk on an investor.

Certificates of Deposits

This is one of the most low-risk investments you can do. They are straightforward, and you give the bank a certain amount of money for a set time. When this time is up, you come and pick the principal plus the accrued interest. The longer the time, the higher the interest rate. There are no significant risks to CDs unless you are hit with an emergency and have to withdraw the money before the period elapses. In such situations, you will be charged enormous penalties.

Cryptocurrency

This is a new investment option that is risky yet rewarding. Cryptocurrencies are a form of digital currency that does not rely on any of the world’s currency. Bitcoin and Ethereum are the most common cryptocurrencies, and their values fluctuate depending on various world events. You can buy and sell them at the respective exchanges, and their wild fluctuations make them a risky venture.

Frequently Asked Questions

Top Mistakes to Avoid When Investing

Investments are a great source of income, but most of them fail due to some mistakes that can be avoided. It is normal to get carried away by the potential of recouping your investment within a short time, and such situations tempt us to make hazy decisions when it comes to investment matters. Here, we will list a couple of mistakes to avoid when making any investment so that you maintain your focus and remain level headed on all issues. Read on;

• Never invest in a business you do not understand. Try and understand the business model of any company even if you are investing in it passively.
• It is easy to fall in love with a company you invest in. Do not do this as you invest in a company to make money and if something that made you invest in it changes, consider selling the stock and looking at other investment opportunities.
• Lack of patience is a significant cause of failure for many investments. Understand that it might take some time to start earning from your investment and do not be impatient and start making hasty decisions.
• Waiting to get even is another mistake that people make. Here, one tries to make sure that they get the initial amount invested rather than counting their losses and moving on from an ailing investment. You can hold on as an investment continues ailing, and you will end up getting nothing from it.
• Failing to diversify your investments is a huge mistake. You need to invest in diverse fields so that your risks are well cushioned. Investing all your money in one portfolio leaves you vulnerable.
• The number one killer of investments is your emotions. The focus should be your top priority and do not let fear or greed take over. Markets can always fluctuate wildly, and once your emotions take over; you will make irrational decisions that will make things worse.

You can avoid these mistakes by planning your moves well. Seek the services of a reputable investment advisor and have them inform you about investments. It is better to invest with information about how things work in that area. Do not risk all your money and as your income grows, have a plan of what you can do with the increased earnings. This way, you will conduct your things in an organized manner and be better placed to handle risks as they come along.

Bottomline

There is so much to be learned about investments since the opportunities are endless. You do not have to do what everyone is doing, as some areas allow you to get creative and try something new. As long as your plan is actionable and can yield returns, there are no bounds on investment opportunities, and it all goes down to how you do it. Investments can give you a much-needed break from your routine or take you to the next financial level. However, understand that the risks are imminent, and if you are not careful, your principal amount can easily be lost. This way, always be inquisitive and try to learn as much as you can before investing in anything.