As soon as you make up your mind about how much money and effort you are ready to put into your future investments and what you expect to get from investing, you can choose what assets suit you best.
Estimate your budget
Different classes of assets and investing models require different initial investment amounts. You can effectively invest any amount of money starting from as little as $50. Keep in mind though, that if you make a modest investment and expect to have a significant profit in a short time, consider higher risks applied and prepare to participate actively in making this profit. The rule of thumb for defining the amount you want to invest: never involve the money you or your family may need shortly; early release of funds (in case of an emergency) almost always leads to losses.
Estimate your desired profit
Putting aside every particular asset properties and market fluctuations, your investment income depends on how much time you spend on picking an asset and managing it after putting money into it and how risky is the enterprise you invest into. The more does not necessarily mean the better. If you possess a decent amount of money and want to get a stable income from your investment, consider the most risk-free options. If you are eager to put a lot of effort into your capital growth, try assets that require more attention. For instance, if you buy a house expecting its price to rise, you may or may not search for tenants, or if you put your money in a PAMM account, you may or may not search for the most reliable trader with the lowest commission and monitor this trader’s performance.
Estimate your patience
Some assets require years to generate income, and other assets bring profit immediately. Sometimes you can predict the profit amount; sometimes it is vague. Investing is always about the future, and the best way to stay cool when you think over any investment decision is to build plans, both long-term and short-term ones. Determine what profit you want to get and when. Then decide what you want to do with it: reinvest or spend. If you go risky, set the lowest threshold of loss below which you do not want your funds to drop and free yourself of such non-performing asset before it costs you too much.
Consider risks
Even keeping money in a jar bears some risk. Moreover, a savings account at a bank in most cases bears a lower risk. Investing means realising risks are inevitable and choosing to take risk control into your own hands.
Investors commonly consider the market risk the highest. This risk consists of several factors that can be reduced to an unfavourable changing of the asset’s market price. Such kind of risk is indeed comparatively high for volatile investment instruments that are expected to bring a huge profit in a little time, but it is not the only one to consider.
Before putting your money into an asset, you always need to consider the overall economic environment: read through the regional laws applicable to the field of your attention—you will know about all taxes that you will or will not need to pay and about any documents you may require. Also, make sure your future investment will not suffer from inflation in the country the asset will be held in. And finally, try to learn about the condition of the local market; you can easily browse subject-related market insights on the web. All this will give you an overall perspective of your investing plan and will make you more sure about what you are doing.
Estimate your engagement
Though investing is considered a form of passive income, you have to realise that the more attention you give to your assets, the more giving they are. Being up-to-date once in a while with what is going on in the market where your savings are present not just lowers your risk, it also gives you more information about opportunities to reinvest them or change your share amount in an enterprise.
Basic principle: if you have a steady full-time job and consider investing precisely as a way to earn a little more money by making your extra savings work, do not dedicate all your free time to managing your investments. If you have a lot of idle time and you want to make investing as your first or second main occupation, then go for it and take as much control over your equities as you feel you need to make the most of your money.
Types of assets
Savings account
Just putting money into a bank account is an excellent way to keep them safe, but you won’t make much of it. Almost risk-free. Many countries implement deposit insurance measures to protect people’s money from possible bank’s mistakes and bankruptcy. One troubling thing about a savings account is unprofitable cash-out conditions for the cases where you unexpectedly need to release your funds early.
Real estate
Depending on how well you know the market and how actively you will manage this property after the purchase, this type of asset provides a wide variety of ways for making money: you can buy a land, construct a house on it, and then sell it for profit, you can buy a house and invest into its renovation, then sell it, you can buy any residential space and lease it out while waiting for its price to grow, etc.
Real estate seldom brings profit quickly. To make money only on reselling it, you should be very well aware of the local market conditions and consider this real estate’s liquidity. You obviously will not be able to sell even a fancy house somewhere in the middle of Siberia as easy as a mediocre lodge on the West Coast.
Securities
Through an investment prism, securities are a number of instruments for creating profit. These instruments may be divided into three major groups: equity, debt, and derivative securities. Only qualified traders can buy these assets directly. Commonly, you can purchase these instruments through a broker.
Equity securities
This is the kind of securities that people commonly picture when talking about the stock market. They are shares of corporations. Both volatility level and market opportunities significantly vary from one company to another.
Buying actual assets of individual companies commonly associated with long-term investing and requires significant initial capital. But there are other options to enter the stock market.
Debt securities
Debt securities are all kinds of instruments representing monetary obligations; their names may vary depending on their repayment and conditions, which we recommend you to read thoroughly before entering into any deal.
Debt securities usually have a due date and associated with a fixed income rate. This means, from the investor’s perspective, they work more or less like a savings account, but bring a higher return.
Debt securities may be issued by a corporation or by the government. The latter are considered highly reliable and may be purchased directly from the issuer without any brokerage.
Derivatives
Securities of this type are the most speculative-oriented, which means profiting from them requires a certain amount of time investment and skills from the investor. They also bear much higher profit opportunities and risks.
The retail part of the derivatives market only allows you to place your orders through a broker. As you only invest into these securities in order to resell them in the future (or otherwise invest against some security expecting its price to drop down), you do not need to put in much money initially—which mean you won’t lose much even though you step into a risky area.
Currencies
There are at least two major ways of investing in currencies and making a profit from it.
The simplest way is to exchange the currency you earned money in for the currency you expect to rise in price in your region or vice versa. This is a straightforward and obvious method, which only brings significant profit in the times of substantial crises and requires a comparatively big initial investment.
The more advanced and widely acknowledged way lies within a speculative area; you can only access the retail part of the market via brokerage services.
Comparing to the derivatives, it may require even more engagement and quick reaction. Investors who enter this market usually track news, reports, economic calendars, and other information that affect currencies’ prices and use them in making price trend predictions.
Intangible assets
This type of asset is distinguished from every other. You can acquire such an asset by right of birth, create them using your skills and talents, etc., but considering private investment, you can only reach for trademarks, copyrights, and patents.
Though considered relatively risk-free, all these assets require a significant effort from the investor’s side to bring profit.
Trademarks are usually quite costly and do not grow in price if the products representing them do not increase their positive image.
Some intellectual property can sell itself, allowing their copyright owners to get their profit, yet to pay off such investment, you need to work on its distribution.
Purchasing a worthy patent as an investment is a great deal. If a patent is in demand, its owner hardly wants to sell it, and its price can be extremely high. Furthermore, if you got one in your possession, you need resources to track its unlawful usage by any unfair entities and hold on to your cherished profit.
What is more
Diversify your portfolio. If you possess a sum of money exceeding the investment minimum for the type of asset you’ve chosen, you might want to think about diversifying your portfolio. You can execute this risk management technique for all types of assets, not only stocks: buy different currencies, purchase real estate in different districts and for different purposes, split the money and make deposits in different banks, acquire futures of different companies, etc.
Search for investment methods that suit you. If you do not have time to track the market and manage your investments effectively, this does not mean you cannot profit even from the most time-demanding assets. Likewise, if you cannot invest the amount required for certain assets, you may purchase a concurrent estate, participate in a mutual fund, or find any collective investment scheme, for instance, hedge funds. Such funds require comparatively low money input, then they allocate it for you, purchasing a variety of assets, diversifying your portfolio. These services cost you a share of your potential income. So in the end, it is up to you whether to spend your money and earn more, or go save and slow and entrust your funds to a reliable agent.
