Every day we hear about investments and their benefits. However, it always seems like a seven-headed beast. Investing doesn’t have to be complicated., but you must ensure that you are aware of the basics. Novice investors do not need complex investment plans. It is important to cover the basic conceptssuch as how much money you need to start, what type of investor you want to be, analyze the risks and choose the best type of investments.
Like any other decision you make, you must be on top of the issues and understand what you are deciding on. When it comes to investing, the strategy is the same. Before doing so, you must ensure that you are informed.
How do investments work?
Investing is nothing more and nothing less than buying and holding investment securities, such as stocks, bonds or funds with the aim of being able to overcome inflation levels in the future. Put simply, investing is a way of monetize the money so that it has more value tomorrow than it has today.
Also read: Saving or investing: what should I do?
Savings vs Investment
Saving and investing are two ways to put money aside for your future. However, there are some differences between them. Saving means putting money aside safely, usually with very low interest rates and easy access, as in a savings account.
Investing means investing your money in products with the aim of build long-term heritage. These assets are more volatile, as they are associated with a greater risk of loss, but also a greater potential return. In this case, the choice has to do with whether you want to risk more or less, and also with the period of time during which you are willing to have the money inaccessible.
Also read: Investing in times of inflation: What options to consider
Negotiation (“trading“) vs Investment
The terms trading and investing are oftens, used equivalently. Both aim to obtain financial gain. Nonetheless, there are some differences between them.
The first difference lies in the asset detention time. Os traders prefer shorter periods of time, taking advantage of volatility to buy and sell based on the trend of the markets. In this case, the gains are smaller, but more frequent.
On the contrary, the An investor’s focus is the long term. An investor does not monitor their investments on a daily basis, and long periods of time can pass without analyzing their evolution. The focus here is on more expressive gains over a longer time horizon.
Another difference is the risk factor. Although an investor does not normally make gains as often as a trader, their losses are also smaller. Once the traders fluctuate in and out of the market on a regular basis, this implies more decision making and more transactions, which can translate into greater gains but also greater losses.
Also read: Is investing in stocks in your plans? Check the basics
When to start investing?
For legal reasons, the minimum age to acquire shares or other assets is 18 years old. However, nothing prevents an adult from creating an investment account for a minor. Many parents even make this decision to start their children’s savings and prepare their financial future. However, the age factor is not the only thing you should consider before investing. You must ensure that you are financially prepared.
Make sure you have an emergency fund
It is important to have money set aside for emergencies, or in other words, have an emergency fund. An emergency fund is different from having savings. Must have both. Savings to cover some major expense or to purchase something for which you have been saving money for some time. An emergency fund is used to cover unexpected expenses, for example, an illness, a car repair, possible unemployment. You should not invest money that you may need in the near future. That is, if what you have aside is not enough, then it is still too early to invest.
Make sure you are free of high interest debt
Make sure you are debt free, especially those with a high interest rate. Having debt, in itself, is not problematic, especially if it is a home loan with low interest rates. However, if you are paying off high interest rate debt, you should consider paying them off first before thinking about investing.
If you decide to invest while paying off your debts, the return you get from your investments will be offset by the interest rates you are paying. That is, suppose you are earning 5% returns on investments, and paying credit card interest rates, for example, of 15%. The 5% you’re earning isn’t enough to cover the interest, and that means you’re paying triple that amount in interest.
Also read: Are you thinking of investing? First do your homework
How much money should I have?
The amount you should have to invest depends on the type of investment account you want to have and the type of investments you make. Thus, the minimum amount to invest can vary between €10 and €3000 or more. Don’t get the idea that you need to have hundreds or thousands of euros to invest. Sometimes, small amounts are more than enough. Of course, the more money you have, the wider your options will be. However, the amount you have is not a limiting factor.
Also read: Why you should choose a fund to invest in the markets
And now, can I invest?
Investments can provide you with great returns, many times greater than what you would get from simple savings accounts. They can offer you fantastic opportunities like buying a house, or enjoying a more relaxed retirement. However, one should not be hasty.
The factors mentioned throughout this article are just indicators. You can fulfill all these requirements and still be afraid to invest. Probably wish I had even more money on the side. There is no problem with waiting a little longer. Just because you decide you don’t want to invest right now doesn’t mean you can’t continue to prepare to do so in the future. Read on and learn as much as possible, work out ways to maximize your savings, create payment plans if necessary. Remember, it’s better to wait a while and make a thoughtful decision than to do it without thinking.
Also read: Investments: how to deal with market crashes
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