At a given point in life, we don’t know what to do with our earned money—save or invest. Millions of people do not understand the difference between saving and investing. Saving is the process of keeping cash after an individual’s consumption. When saving, money can be had within a short time when needed. Investing is the process of using our income to buy an asset that you think will generate profits in the future.
Saving is short-term oriented, but investing is either short-term or long-term, depending on the investor. Over the years, the best investment plans are productive assets, including real estate, bonds, and stocks. To know more about stocks, read more on best analyst ratings.
5 Top Factors to Consider When Investing Hard-Earned Money
- Understand How the Investment Works
In the world today, companies and corporates are coming up with so many exciting investment plans. It is essential, as a new investor, to understand the basics of the investment plan you want to buy, what it entails, and how you will generate profits. If you cannot give a brief to another person and understand the investment, you should keep off that investment. Unfortunately, people rush to make decisions that end up in losses. A good example is investors who stake their monies only for the said investment to be a pyramid scheme.
- Determine the Type of Investment to Take
There are so many types of investments. As a new investor, you should research and make an informed decision on the kind of investment you want to involve yourself and your capital. The major types include:
- Stocks – The buying of ownership shares in a public company in the anticipation that prices will go high in the future and profits realized
- Bonds – Lending money to an institution
- Exchange-traded funds – Investments that attract a market index on the stock markets
- Retirement plans – Investments majorly sponsored by your employer
- Annuities – A contract with an insurance firm as a retirement savings plan paid in periodic payments in the future
- Options – Ability to buy or sell shares at a given time and a specified price
- Real estate – This is the investment in land and buildings. Investment in real estate is becoming common for people who love physical assets
- Duration of the Investment
A new investor should know for how long they want to invest. Be it short-term or long-term, there are factors to consider. An investor who wants to invest for a short time and get returns would not go for investment plans that will take longer to mature. It all depends on your timeline. Such an investor would go for methods such as bank deposits and stocks. A long-term investor would go for a plan, such as real estate.
- Risks That Come With the Investment
As usual, life is a risk itself. Investment risks are also not inevitable. Even if there is no certainty of getting 100% returns, there should be tangible returns from the investment. The main agenda for investing is not to lose; it is to make a profit. Understand that you stand a double chance to gain value for your money or lose some of it. What was your capital and would you afford the loss? Knowing these factors will help you make better investment decisions.
- The Legitimacy of the Investment
As a new investor, it is essential to know whether the investment you want to work with is registered. This knowledge will erase the doubt that you may never recover your money. Know the person you can contact if an investment goes wrong for either correction or refunding your capital. This is a mistake people make and they do not know who or where to run to in the event of anything.
Investing is not for the fainthearted. It comes with risks and uncertainties. Investments are not experimenting. You have to be sure of what you are getting into and the available exit options when things aren’t working or turn sour. There is a broad spectrum of investments to choose from. Some will work for you and some will not. That said, you must ask yourself the questions above before making a move.