How to invest money: This article is more likely not a guide to action, but a certain route map. You will learn why the skill of investing is so important in the modern world, where to start, what important principles and rules exist. We will also analyze which assets to invest in for beginners in order to get decent income and minimal risks. Investing is a difficult and partly dangerous activity, but we will try to facilitate it.
- The Importance of Investing
- Is it worth starting from scratch
- Basic Investment Rules
- What can I invest in
- Top Investment Books
The Importance of Investing
Around the raging inflation, global economic crises, defaults and all that. The financial world is too unreliable to rely only on its cheapening savings, on the work that robots will do tomorrow, and neural networks and the state, which can plunge into the abyss of another crisis. Investing (despite all its riskiness) is not only a way to secure your money, but also a path to financial freedom and passive earnings
In addition to the fact that investing can generate income, it is also a skill that teaches you to carefully analyze any situation, make responsible choices, think through all the moves ahead and minimize risks.
Is it worth starting from scratch
Even if you start with some thousand rubles, these investments will pay off. If not money, then experience and knowledge. It doesn’t matter how much you start. Investing is a skill. And the sooner you start, the faster you learn. Well, small amounts – only plus – there is less risk of burnout due to inexperience.
Moreover, everything is not as complicated as it seems. In the West, the principle of Asset allocation is popular, which implies that an unprofessional investor pays minimum attention to a highly diversified portfolio. In total, you will need less than a day a year to manage your investments.
Basic Investment Rules
Before proceeding to the study of financial instruments, the analysis of their risk, let’s identify investment axioms, the failure of which will definitely put you in bankruptcy. And the performance? – you ask. We do not promise, but this should help make money.
How to invest money: Define your goals
What do you want from your investment? Protect yourself from inflation or provide a comfortable old age? In the first case, it will be enough to open several deposits and a couple of hours a year to service them. In the second, you will need to create a serious portfolio with different sources of income and devote much more time to this. Having a goal is the first step in building an investment strategy.
Create and replenish investment capital
It’s simple – save some of your income every month. Let’s say it will be 10%. You can more or less, the main thing is regularity. You probably can live on the remaining 90%, right?
Be disciplined and don’t panic
Google the dynamics of the price of gold over the past 50 years – despite temporary ups and downs, the general trend is showing growth. Many other established assets, even the notorious cryptocurrencies, have the same behavior. If you have a 10-year plan, you should not sell the portfolio after 2 years, because the price of gold suddenly fell by 25%. It is quite realistic that in 2 years it will grow by 100%
How to invest money: Minimize your risks
Whatever it is, you can always burn out, but in your power to lose a minimum. The easiest way to do this is to diversify your investment portfolio. Fill it with heterogeneous assets (stocks, precious metals, deposits, etc.), with varying degrees of profitability and risk. Remember the 80/20 rule: 80% of the portfolio should be low-risk, but low-yield assets, 20% – high-risk and high-yield.
Create an airbag
Do not invest all your savings in your investment portfolio. Not all financial assets have high liquidity. And if something happens, you will not be able to quickly find the money to eliminate force majeure. Create a reserve fund and keep it as accessible as possible.
Do not invest borrowed funds
You cannot be 100% sure of the return on your assets, even if you have insider information. Playing with credit money is too dangerous to justify. It’s better to invest less, but yours.
Do not trust anyone and analyze the asset yourself before entrusting your hard-earned money to it. Everyone is wrong, and top financial analysts too. Believe only your instinct.
Invest in what you understand
This item follows from the previous one. If you want to invest in a ready-made business or startup, choose a company that is close to your competencies. Do not work with an IT company if you are a humanist to the core.
Ignore market dynamics
No one can predict the dynamics. No matter what financiers say about their fundamental analyzes, black swans always happen : both positive and negative. Do not rush to sell or buy at every market turn. Stick to your original strategy.
What can I invest in
There are a lot of profitable assets now. We will not go too deep, but consider only the main ones. If you are interested in this topic, write in the comments, and we will certainly take into account your wishes.
- Deposits The most reliable option, but also the least profitable. Great for starting – you will not get a lot of income, but protect the money from inflation.
- Precious metals. Despite temporary drops, this asset is reliable and shows good profitability. The average profitability of gold (including inflation) from 2003 to 2013 was 7.66%, silver – 13.4%, platinum – 12.7%.
- The property. It has high profitability (up to 65% for 3-5 years) and makes it possible to receive passive income. Of the shortcomings – a high threshold of entry and yet greater illiquidity than the same precious metals. In addition, the price of real estate is highly dependent on the general economic situation in the country.
- Investment funds . There are many varieties of these organizations, but their essence is the same – you give your money under the management of professional financiers, for which they charge part of the profit. If you invest in a reliable company, you can count on an annual return of 12-40% with a comparable level of risk.
- Business and startups. The younger the startup, the more profit you can get. If a young company does not burn, what happens in 80% of cases. This is definitely not a beginner’s option. But then the percentage of profit here does not have a ceiling.
- Securities. This option is very similar to the previous one. The shares of some companies can grow by tens and hundreds of percent, but just as capable of falling. However, you can take advantage of low-yield, but more reliable government bonds.
- Cryptocurrencies. This is a completely new financial instrument, and therefore very incomprehensible and unreliable, but still promising fantastic profits. In some cases, the price increase was more than 1000% per month (as happened with bitcoin in 2013). True, his fall was just as loud and fast.
Naturally, the foregoing does not exhaust the knowledge that a novice investor needs to possess. Therefore, it makes sense to deepen your knowledge with the help of specialized literature.
Top Investment Books
If you want to seriously plunge into the world of investment, it is better to do without the invention of a bicycle – first of all, you should study someone else’s experience. This will help our selection of books about investment.
- Benjamin Graham Reasonable Investor. Just a classic about securities. One of the first books on investments, according to which the famous Warren Buffett studied.
- Esme Faerber “All About Investing”. A very competent and simple guide for beginners. The book is informatively written about all types and strategies of investing.
- Warren Buffett. Essays on investment, corporate finance and company management. The famous leadership of the greatest investor of all time.
- Richard Ferry “All About Asset Allocation.” Must read for a novice investor, written by a practitioner. All you need to know about diversification and a reasonable distribution of investments.
- Nassim Taleb “The Black Swan”. The book is not entirely about investing, but understanding what is described in it is very important for critical perception of all subsequent information on this topic.
Investing is the only way to protect your money from depreciation, although risky. But investing should be your minimum plan, and the maximum plan – get a source of passive income. If everything is done correctly and critical thinking is included , then this is an achievable goal. Be careful and smart – and you won’t have to think about retirement!