Investment guidelines for beginners are incomplete if one doesn’t know the definition of investment and all it entails.
What is an investment?
In the economic world, an investment is the purchase of goods and services or an asset that is not consumed today but are used in the future to create wealth or more profit. In the finance world, an investment is a monetary asset or bond purchased with the sore aim that the asset will provide income or add significant value in the future or later sold at a better and higher price. An investment is an asset or anything acquired to generate income or appreciation with the hopes of a significantly higher payoff in the future than what was initially put in.
Investment is not only about gains or appreciation; it also involves risks. As a beginner, you need to understand what Investment risks entail.
What are investment risks?
Knowing what investment risks entail is one of the crucial investment guidelines for beginners. When you invest, one is exposed to various investment risks. As a beginner, there is a need to learn how multiple risks can affect your investment returns or income. Learning about investment risk will also aid you to choose your risk wisely before venturing into any investment plan.
Below are some essential investment risks to take note of (investment guidelines for beginners)
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Market risk
This type of investment involves the risk of investments depreciating because of economic developments or other events that affect the entire market. This investment risk also involves equity risk, interest rate risk, and currency risk.
Reinvestment risk
This investment risk has to do with the loss from reinvesting income at a lower interest rate. Suppose you bought an asset paying, 6%. Reinvestment risk will affect you if interest rates drop and you have to reinvest the regular interest payments at 5%. Reinvestment risk will also apply if the asset matures and you have to reinvest the principal at less than 6%. This is one of the investment guidelines for beginners which must be put into crucial consideration before reinvesting.
Inflation risk
This investment risk (inflation risk) involves a loss in your purchasing power if the value of your investments does not meet up with inflation. Shares offer protection against inflation because there is always increment in some companies, share prices, therefore rise in line with inflation. Real estate offers some protection because landlords can always increase rents over time, which is why real estate is one of the best investment plans to consider as a beginner.
Liquidity risk
This type of investment risk involves the risk of being unable to sell your investment at a reasonable price and getting your money out whenever you want to. To sell the stake or asset, one may need to accept a lower price. In most cases, such as exempt market investments, it may be tough to sell the investment at all.
In Investments, beginners do make the mistake of misplacing liability to an asset. Never to worry this article will cover all the investment guide for beginners, which will aid to differentiate between an asset and liabilities.
What is an asset?
An asset is any stock, investment, or resource with a significant economic value that an individual, company, or industry owns and controls with the expectation of it providing an increment in the future. Most Assets are always reported on a balance sheet and are bought or created to increase in value and interest over time.
Examples of asset:
- Real estate
- Inventory
- Machinery
- Investments
- Cash
The more your assets column increases more than your liabilities; the more healthy your financial system becomes, but when you find yourself with more liabilities, your financial system tends to be in great danger. Assets add more value and increase your economic equity, but liabilities doesn’t add anything to your financial system. An asset always put money into your pocket, but liabilities it takes money out.
Examples of responsibilities
- Taxes
- Mortgage
- Wages
- Rents
- Cars
You need to take note of this “Anything that takes money from your pocket without bringing back any profit is a liability.” As beginners, your debt should never exceed your assets.
Once familiarized with the different types of assets there is, then you can begin to think about piecing together a mix that would fit with your circumstances and risk tolerance.
Growth investment
Growth investment is more suitable for long term investors that are willing and able to withstand market ups and downs. What are the things to invest in? This is the question beginners ask, this investment guidelines for beginners will help to answer this question.
List of things to invest in as a beginner (investment guideline for beginners)
- Real Estate
- Bonds
- Mutual Funds
- Invest in the Stock Market
- Gold (commodities)
- Annuities
- Exchange-Traded Funds (ETFs)
- Haulage services/logistics
- Stocks/ shares
Endeavor to research in-depth on these before choosing any of them.
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