The Golden Years. Retirement is often advertised as the best years of your life – the time when you don’t have to work to maintain your lifestyle, because you saved diligently for years to achieve financial independence. But when it comes to retirement, many individuals seem to be falling short of the mark. So how do you tackle the task of investing your money today to ensure the security of tomorrow?
Whether you’re twenty-five or fifty, there’s no better time to start investing in your future than the present – unless, of course, you can build a time machine and start even earlier. That said, the thing that is just as important as making the investments is understanding them, at least on a basic level. And so today, we’re going to go over a few basics of investing that everyone should know.
What Is An Investment?
Investment is a broad word that covers a wide range of ideas. To some people, an investment is purchasing stock in a company. To others, it’s buying real estate to hold or resell. Regardless of your definition of investment, there are some common types of investments that offer the best chance of a secure financial future. They include:
- Stocks are one of the most commonly known forms of investments – a “share” of stock represents a piece of ownership in a company, which includes receiving a portion of their earnings equivalent to your share.
- Bonds are another type of investment. “Savings” or Treasury bonds are extremely common, and represent a loan made to the entity issuing the bond in exchange for repayment with interest.
- Investment Funds. Investment funds (or mutual funds) are a conglomerate of different types of investments, and represent a diverse portfolio that balances risk and reward.
- Real Estate. Investing in real estate directly by purchasing a piece of property – or indirectly by investing in a company or fund that focuses on acquiring real estate like an REIT (Real Estate Investment Trust) – allows you to benefit from the equity and appreciation of your purchase.
There are plenty of other types of investments – and beyond the different categories, there’s one very important thing to know. Every type of investment carries an inherent level of risk. Balancing your investment portfolio to account for your risk tolerance is an important part of being an investor.
Choosing less risky investments often produces a lower return, but also reduces the chances that you’ll lose money on the deal. So how do you guarantee that you’re not going to lose any money? By depositing it in an FDIC-insured checking or savings account. Any other type of investment is going to involve some risk, requiring you to be comfortable with the idea that you could win big – or lose it all.
How Do I Invest My Money?
The biggest thing to know about investing is that no two investments are exactly alike, even if they are in the same category. Developing an understanding of different kinds of investments may be in your wheelhouse – but if it’s not, you might want to consider hiring a professional to do it for you.
If you’re more of the DIY-type, and you have the time and flexibility to give it a go, you can learn how to invest all on your own. Online trading has created new opportunities for the individual investor to explore, build their own portfolio, and reap the benefits of their investments without owing fees to a wealth advisor or other financial pro.