Investments are available to more people than ever before. With the expansion of online banking and digital investment software there are few people who are unable to invest their extra money if they are so inclined. If you have some extra money which you have no immediate use for, it is worthwhile to invest it and grow your initial sum over time. Almost everyone understands the concept but few of us capitalize on the idea, for the most part, because of the level of complication involved in the process.
There are many different kinds of investments. Stocks, bonds, CDs, loans, just to name a few. There are also retirement investments like 401Ks and IRAs, but those will be covered in another section.
Stocks
Stocks are one of the most nebulous and volatile forms of investment. It is possible to obtain a spectacular return on your investment by betting on the success of a small start up or other undervalued fund, however it is also possible to lose much of the money that you invest if the entire market takes a turn for the worse. Most people avoid this volatility by diversifying the money that they invest so that their returns reflect the relative stability of the market as a whole instead of the volatility that individual stocks can see on a day to day basis. This method of investing will commonly provide a return which is greater than simply leaving your money in a savings account in the long run, however it comes with certain risks that you should keep in mind.
There are many methods of investing in the stock market which are aimed at people with different goals. Here are a few of the most popular strategies for investing in the stock market:
The Little Book of Common Sense Investing
Stocks for the Long Run
Bonds
Bonds are essentially loans purchased from the government. They have a set interest rate and mature over their life time. Once they fully mature you receive a pay out. These are one of the most secure investments you can make and as such will not provide a spectacular rate of return. They are perfect for those looking to store their money in a safe place for a long period of time. If this is the type of investment you are interested in then The Strategic Bond Investor
CDs (Certificate of Deposit)
CDs are very similar to bonds except you take them out through a bank. You buy the CD with a set time to mature. Generally the longer the holding time the better the interest rate is for you. Once the CD matures you are payed out for the amount you purchased it for plus the interest. This is another safe avenue with the opportunity to earn a higher interest rate, however it is slightly riskier than a bond. If the specific bank were to go out of business you may not receive the pay out for the maturation of the CD.
Loans
Loans have, in the past, been the sole territory of financial institutions and those who have an exorbitant amount of money. With the help of the internet lending has become easier and much more widely available. Sites like Lending Club allow individuals to contribute a portion of a loan that would normally be too large for any single individual to fund. This is one way to earn a higher rate of return on your investment by eliminating the middle man. Direct lending is more risky for every small amount of money which you contribute, but you can mitigate the risk by contributing a small amount to many different loans.
All of these investments come with varying amounts of risk and their given reward often reflect these amounts. Bonds and CDs have much lower interest rates because they don’t constitute as much risk, whereas direct lending can have interest rates of up to 30% depending on who is taking out the loan. Stocks have no set payout which makes them more of a gamble overall based on the health of the market and speculation surrounding the future of different companies. Choosing a combination of the investments which fit your fiscal situation and goals will allow you to best move forward financially.
If you are looking to dive deeper into the world of investing there are a few resources which will help prepare you to take control of your finances. Here are some of the most complete and helpful sources of information that you can use to help guide your future investments:
Money Game
