Today, the concept of "investing" evokes different associations. Some smile wryly, while others, like fools, "invest" their only funds in "the same chance", and then tear out their hair, gray from experiences. But there are those who approach this issue with their "head" and always remain with a profit, knowing why investing is important.
Main reasons to invest
So, let's start by explaining one dogma. Only by understanding it will everything written below have meaning and benefit for you. Whether you invest money, time or energy, it basically means investing to get more out of it. Is it clear or not? In other words, you make some effort to achieve your goal.
The goal can be short-term or long-term. Some people want to increase their savings in a few months and choose a form of investment that offers a higher return - stocks (CS), gold, cryptocurrencies. Others want to save for retirement, create passive income, for example, with the help of a pension ETF. Perhaps you are thinking not only about your own future, but also about the future of the planet and are interested in sustainable investments.
Understand one thing: investing does not automatically mean playing the stock market. There are different investment strategies and forms. Let's take a closer look at them!
How it works
To understand the investment mechanism, you need to imagine a vegetable garden. To grow carrots, lettuce, radishes, and more, you need nutrient-rich soil, seeds, water, and sunshine. Soil is the foundation, part of your salary, or financial cushion. It doesn’t matter how much money you have, a lot or a little. It’s hard to be left with nothing when you have nothing: because 100×0 is still 0.
Sowing is your starting capital. You sow small seeds, the plants grow and later give you delicious vegetables to harvest. Of course, you need to water your garden regularly, in other words, continue to pay money to grow carrots and the like. And the sun is compound interest, with which you ensure even greater growth without doing anything.
The explanation is on the fingers, but very simplified, and it does not apply equally to all investments. It matters whether you want to invest in CS, real estate, cryptocurrency. But you don't need to struggle with complex definitions. You can do it easily. Well, agree with us, right?
Start investing
Now the question arises: where to start? To do this, you don't need to close your eyes tightly and throw yourself into the abyss. You just need to take a few steps with a rivet in your head:
- Define a goal.
- Determine the amount.
- Find the correct form of attachments.
- Put money on deposit.
- Keep track of your investments.
How much to invest
Many people are stopped from this step by the belief that they need a lot of money, literally bags of it. But this is only partially true. Of course, you can achieve higher returns with large sums, and you need a lot of capital for very expensive investments, such as real estate. But there are savings plans and ETFs where you can invest as little as $25 a month. If you want to invest in cryptocurrency - for God's sake! Even 1 buck is enough to start.
So, the question isn’t how much you should invest each month, but how much you can. Hear the difference? That’s why it’s so important to analyze your finances first. Once you know your monthly income and expenses, you can create a budget. The good news is that reviewing your finances can open your eyes to potential savings—you may even have more money than you thought. What’s more, many investments are as flexible as your lifestyle and your ability to squirm around in it like a stung snake in a hot frying pan. You can adjust your monthly amount to your current situation, sometimes investing more, sometimes less.
What are the risks associated with investing?
Whether it’s a price drop, a stock market crash, or insolvency, there have always been incidents in the past where people lost money. This is also one of the reasons why investments in Ukraine are treated with caution, even fear. As is often the case (oh, we know this) — the devil is in the details. Look: a stock quickly loses value because the company lost trust due to fraud and becomes insolvent. And you have a bunch of them, what do you do? Then it may make sense to sell the shares as soon as possible, even despite the losses. Peasants! These and similar scandals are more often the exception. Even major stock market crashes, such as the financial crisis of 2008/2009, are exceptions if you look back at the last 100 years.
Price fluctuations (volatility) are the rule. When CS falls, it is not necessary to immediately start trading. After some time, prices can rise again. Only when the fall is 20% +, lasts at least two months, and the general mood in the financial market is pessimistic, do experts speak of a bear market. Bear markets occur from time to time when the economy is in a state of stagflation (today).
Bear markets are always followed by bull markets. So you can minimize investment risks. How? Silently, keeping calm, and with your eyes open, carefully observing the market and considering a much broader context. You can look at the results of individual CSs for different periods of time: for the last three months or for the last five years. Make a mental note of it: as long as you hold the shares, that Gollum has his "gold", and do not sell them, you will have neither realized profits nor realized losses. But you will have nothing at all, let him go! Got it?
Diversify your portfolio
One of the best and smartest ways to minimize risk is to have a diversified portfolio. Not familiar with the concept? Experts call it “risk spreading.” Have you heard of eggs? Well, the ones that are all in one basket, right? How have you not heard? Well, then let’s take the second example — a vegetable garden: if you grow only lettuce, and then snails or a neighbor eat it, you will be left without a crop. But… If you are very smart, and grow cucumbers, tomatoes and zucchini, the loss of lettuce will not be so significant, although insulting.
As with vegetables, there are many types of investments that you can use to build your portfolio.
What to invest in for a beginner
To begin with, it is necessary to say the following: avoid complex financial products that you do not understand (yet) or that you consider too risky. It is better to be safe at first and invest only small amounts, if possible. You can always expand your portfolio later. The most important thing is that you make your own decisions and take responsibility. After all, this is what it means to have control over your finances.
- Promotions
Common Shares are securities, shares in companies that you can buy on the stock exchange. Companies go public to increase their available capital, emptying the pockets of investors. So, when they are bought, money is given to the company, taking a thorn out of its… Well, let's not talk about that. The one who bought them becomes a proud co-owner and receives dividends, that is, a share of the profits. Placing assets in CS is associated with a certain risk for beginners, who should be well informed about the company in advance and react sensibly if the price of them falls. Keep in mind that no one can predict the long-term future of market development. Anyone who thinks they can do it, playing like a game of chance, can lose a lot of money. Do not believe anyone who says they know this.
- Investment funds (IFs)
An IF invests in not one company, but 50 or 1000 at once. It tracks the average price dynamics of the CS (index) of all the companies that are part of it. The DAX is an index that reflects the performance of the 40 largest German companies. Therefore, the funds are associated with less risk, because if the price of a company drops sharply, there are still enough other companies to compensate for the losses. However, IFs are actively managed, which means that their managers are able to influence the composition to achieve higher profitability (and make more money themselves). And since no one can predict prices, this can work against them.
- Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are passive equity funds. They track an index of the securities of all the companies they are part of. However, unlike mutual funds, ETFs are not actively managed. This means that there is no one to change the composition of the underlying stocks to achieve a higher return. This makes this type of investment not only safer, but also cheaper. There are also ETF savings plans that allow you to automate monthly payments without having to worry about them. This is why many beginners choose to invest in ETFs. Unlike mutual funds or CSs, short-term gains and losses can be smaller.
- Cryptocurrencies
Investing in cryptocurrency involves certain risks for beginners. Cryptocurrencies like Bitcoin are still relatively new, the market is unregulated, and price fluctuations can be huge. Unlike ETFs or IFs, cryptocurrency often requires quick action. Therefore, you will have to monitor price dynamics almost daily and decide whether you want to hold on to or sell your coins. The decisive factor is how much time you spend actively managing your crypto wallet every day. Smart tools and intuitive features make investing in cryptocurrency relatively easy for beginners. Don't forget about passive income, where you can earn like a pro.
- Government bonds
Government bonds work similarly to CS, except that they are issued by governments. Countries do this to plug holes in their national budgets. They are tied to specific maturities, usually between 10 and 30 years. How risky they are depends on the government issuing them. For example, if a country experiences hyperinflation, lenders are more likely to never see their invested money again.
- Precious metals
Precious metals, such as gold, platinum, or silver, are considered anti-crisis investments because they are not subject to inflation. In addition, precious metals are not subject to taxation under the “Investment” heading in some countries after one year of storage. The value of gold fluctuates more than the value of CS because the price is determined by demand. In addition, there are no interest or dividends, and since the market is not regulated, there are many dubious traders. Therefore, investing in precious metals is quite risky for beginners, especially if they do not conduct prior research.
- Tangible assets
Whiskey, Pokémon cards or exercise equipment: some people invest their money in valuables in order to sell them later for a profit. After all, works of art or 20-year-old champagne will increase in value over time. The advantage of tangible assets is that they are not affected by inflation. Moreover, buying a designer handbag is not as expensive as buying real estate, so this investment can be attractive to small investors. But tastes change, and things that are considered fashionable now lose their relevance and therefore their value over time.
- Real estate
The real estate market in Kyiv, Dnipro and other cities is in a difficult situation. If you rent out your own housing, you can use these funds to repay the loan and sell the apartment or house later at an even higher price. For beginners, this type of investment is quite risky, as it involves very high costs, a lot of effort and sometimes unpleasant surprises. Construction defects, unfavorable location and much more reduce the value of real estate.
What is the best investment today?
There is no universal answer to this question. It is like asking a fortune teller in a village. The best investment at this time depends on whether you are pursuing short-term or long-term goals. In the short term, a term deposit or a demand deposit may be the right option, as these investments now offer attractive interest rates again. ETFs can be volatile in the short term, but in the long term they are a safe investment.
You can look at the average returns over the past 50 years to find out which investment options are right for you. But how investments have performed in the past has little or no bearing on their future performance. After all, who knows the future? It's important to stay up to date with current financial trends and do your research to invest your money in the best way possible. What was is what is now, especially in times of financial crisis and war.
Conclusion
Investing wisely is the main key to success. Yes, those who do not take risks do not indulge in sparkling wine, but are you ready to say goodbye to your "blood" savings in pursuit of significant profits? Highly doubtful. Therefore, any investment should be approached wisely: conduct a thorough analysis, studying everything from "A" to "Z", even delving into reviews on social networks. And one more thing: technical (TO) and fundamental (AT) analyses are, of course, important financial tools, but, as the rapidly changing world economy shows, they are like a light bulb in the long term. So, if you decide to join the ranks of investors, be fully armed.
