How to Start Investing Your Money
You have a considerable amount of money saved up for investments, but have no idea where to park your cash. This is not an uncommon occurrence considering the multitude of options: stocks, bonds, mutual funds, precious metals, or real estate to name a few. Below are the advantages and disadvantages of some investment options.
Stocks: Investing in the Stock Market
This section could be an entire article itself. Stocks are probably the most complicated of all the investment vehicles. The advantages of stocks are the great return on investment they can provide. You can invest a small amount of money in a new company and, over time, turn a big profit. Also, stocks are very liquid, meaning they can be exchanged for cash value very quickly.
The main disadvantage of the stock market is the risk. Everyone knows of the 1929 stock market crash or the recent hit the stock market took during the recession we are currently in. There is always a certain amount of risk involved, but some stocks are less risky than others. For example, the risk difference between blue chip stocks and small cap stocks.
Blue chip stocks are your big name companies: Coca Cola, Wal-Mart, Exxon-Mobile, etc. These stocks aren’t usually volatile, and they will likely pay a dividend, which is essentially a sum of money a company pays you for owning their stock.
A small cap stock is usually a speculative buy and is likely to lose you your investment, but the small cap stocks always have the greatest room for growth. In the stock market, there is a simple trade off: more risk equals more reward.
Bonds: Parking Your Money in Bonds
When you buy a bond, you are buying a company or city’s debt, depending on the bond that you buy. Basically, you are loaning money to a company or city and they pay you an interest rate on the amount you loan them. The advantage of buying bonds is it is a safe, predictable investment that will yield you more money than most savings accounts.
You know how much you need to put in, how long your money will be tied up, how much that investment will yield and you know all of this right from square one. Bonds offer a dividend-type payment that is paid quarterly. The disadvantage of bonds is that they are not very liquid. If you buy a five-year bond, your money is tied up for five years. If you want to get your money out earlier, it costs you money to do so.
Real Estate: Purchasing Real Estate For Your Portfolio
Real estate is regarded by a lot of investors as the top investment choice. One advantage of buying real estate is you are buying an actual thing. In the case of stocks or bonds, you own a piece of paper.
Real estate, on the other hand, is what is called a tangible asset. You can add a hot tub, paint the walls, or do a copious amount of other tasks to increase the value of your investment. Also, you can make money in multiple ways. First, you can make money through the appreciation of the house. An example of this is when you buy a house for $20,000 dollars and you sell it for $30,000. You can also make money by getting rents paid to you. Essentially, you can have a renter pay for your mortgage and make money on top of that!
There are some disadvantages to real estate though. First, it can be expensive to start investing into. If you don’t have the ability to borrow money from the bank, it can be next to impossible. Also, real estate requires management. You can hire a management company, but this eats into profits.
Which To Choose?
There is no right answer of what investment vehicle is the right choice. As it has been stated, there are certain advantages to each. It should be noted that these are not the only choices for investment options. The best thing to do is to discuss your options with a professional financial advisor, but don’t procrastinate. The sooner you start investing, the better your portfolio will be.
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