How to start investing? Where should I invest? How much should I invest? Here, we will discuss investment ideas for everyone and how to get started. We will also take a look at the difference between investing and trading. Before you start investing, please make sure you have some cash stowed away in an emergency fund to cover an emergency – cars break down and other stuff happens in life, just be financially prepared to tackle it. Also, please be cognizant of the fact that investment involves risk and your portfolio may lose value.
Investing vs Trading
Investing vs Trading: Let’s take a look at the key differences between investing and trading. Generally speaking, investing is rather passive and investors maintain a longer investment horizon than traders who remain much more actively involved with their trades.
Where Can You Invest?
There are multiple options for investment. Some are passive, and some are active. There are traders leveraging softwares that time the buy and sell transactions to the fraction of a second to extract value from the volatility of the market. That is active trading and people do that for a living, 8 hours a day, 5 days a week.
Here we will not focus on active trading. Our goal here is to introduce methods of investing to people who are keen on investing with a longer investment horizon, while keeping their full-time job.
Investing for Retirement
There are multiple options that enable you to plan and invest for retirement. They have tax advantages also. Popular retirement planning options are 401(k), Roth IRA, IRA.
Main advantage of Roth IRA is that you can lock in a lower tax rate earlier on, and later pay no taxes on the capital gains on your investment.
Read detailed articles on links below:
Investing in Bonds, Stocks and ETFs
The stock market has minted many millionaires. There are two main ways to invest in the stock market – buying individual stocks (also called equities or shares) and buying ETFs.
ETFs contain shares of more than one company, and is more diversified than purchasing a single stock. Since diversification reduces risk, starting off by investing in some ETFs can be the perfect way to test the waters of the stock market in a relatively safe manner.
Stock Picking, or the method of investing in selective stocks, can be risky. Risk is not a bad word here. While there is a risk of losing more money, stock picking presents the chance to make much higher returns by picking the right stock (or a few stocks).
Buying government backed bonds is a conservative approach of investment and typically provides lower returns than stock market. It is ideal for risk averse investors such as people in retirement or nearing retirement.
Investing in Real Estate
How to start investing in Real Estate?
Real Estate has long been considered a safe investment vehicle, and for good reason. Real Estate investment can be very rewarding if done right. Fortunately, that is fairly easier than investing in stock market via stock picking.
Invest in a house
The mortgage rates are fairly low, under 4% for a 30-year mortgage (as of Oct 2019). By putting just 20% down, you can essentially borrow the remaining 80% at 4% interest rate.
See today’s mortgage rates below
For example, if you purchase a $300,000 house, by putting down $60,000, the returns can be very rewarding five years down the line.
- Capital Gains: Value of house grows by 3% per year for 5 years
- Rent payment is similar to cost of home ownership, including mortgage payments.
You can try your personalized mortgage payment scenario here.
Invest in a REIT
There are multiple REIT (Real Estate Investment Trust) options that give you the option to invest in real estate without the high down payment and without the hassles of home ownership.
DiversyFund is a popular option. The minimum requirement to participate in DiversyFund Growth REIT is as low as $500. By investing in REITs, you can enjoy the secure and high returns even with a little investment.
Read Related: DiversyFund vs Fundrise
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Updated: July 30, 2021 by FinPins