What is Investing, and How Does It Work?

Investing is something that many people are interested in, as they recognize that it is a practice that can supplement their income and help them to be more financially stable and independent. However, it is not necessarily something that a person can simply start doing. It requires some understanding and theory in order to get the most out of it. You might be wondering what investing actually means or how it works. This article explains the concept of investing, as well as some of the different ways you can invest.

What Exactly is Investing?

To understand the practice of investing, you also need to understand what an investment is. An investment is an amount of money that you put into something, in order to (theoretically) increase its value. Anything that has a value which can increase can therefore be an investment from the perspective of the individual. In even simpler terms, if you allocate some money to something with the intention of getting more money in return in the future, this is an investment. There are a few different ways that you can invest, generally speaking.

It makes sense to break investment down into three primary categories. These are lending, cash and ownership. This list goes into some depth regarding what these different types of investments mean:

  • Ownership: An ownership investment is a kind of investment where you own something. This can be part of something or something in its entirety. This is probably what most people think of when they hear the word investment, as stocks are a type of ownership investment.
  • Lending: A lending investment is a kind of investment where you lend money to a person, or institution in most cases. A common example of a lending investment is a savings account, as this accrues interest. This is because you actually lend money to the bank through your savings account, and in return, your money accrues some interest over time, becoming more valuable the longer that you leave it.
  • Cash: These types of investments are those that can easily be converted back into cash, with a money market fund being a good example. They are generally not as profitable as other forms of investments, with returns usually being between 1-2%. However, the risk is often very small, so they could be a good option for someone who is extremely risk-averse and yet wants to invest.

There are also some principles of investing that are important to know in order to get the most out of the practice. Investing is something that is inherently risky, for example. Whenever you put your money into something, there is no guarantee that you can get it back. However, risk can be minimized in many different ways. Many people refer to the risk and reward principle in investing. This principle essentially stipulates that the higher the risk associated with a particular investment, the higher the potential for reward is, too.

The Different Types of Investing

As mentioned above, ownership investment is the most common type of investing that most people refer to when they talk about the practice. There are many different types of ownership investment, which vary both in how profitable they are and how risky they are. One common form of ownership investment is actually starting a business. When you start a business, you spend money setting it up and getting it in order, and this is a form of investment, as you are putting your money into the future success of the business, instead of getting something immediately in return. This is not the most passive form of investing, but it can make a person extraordinarily wealthy if they are successful in the venture.

Another form of ownership investment is simply buying a stock. In very simple and concrete terms, when you buy a stock, you have bought some portion of the company, and the stock is proof of this ownership. While it is clearly not the same as owning something outright, you are often entitled to some say in the running and administration of the company, though it is generally not used by most investors, who are most interested in the financial gains that they can make through investing. Whether or not your investment in this area is successful depends on the rest of the market that the company is in and a whole host of other factors as well.

One type of ownership investment that is slightly controversial but still widely practiced is purchasing gold. Many investment experts and theorists suggest that between 3-15% of your portfolio should be made up of gold, either in physical quantities or investments in the market. This is because gold has sustained its inherent value for a considerable length of time, and it is universally still considered to be highly valuable today. However, others argue that, as we become more and more dependent on technologies and the digital world as a species, gold is going to become worthless. This has not come to pass yet though, and gold is therefore worth considering as a type of insurance investment in case other parts of your portfolio fall through.

Real estate investing is quite a common practice, and it often involves purchasing a property and perhaps renovating it or restoring it somehow before selling it on, ideally at a higher price than it was bought for in order to have some level of profit from the venture. Many people also purchase properties and then rent them out, which also makes it a form of investment. This can be a good form of investing, as it is often independent of the effects of the stock market but generally requires a much greater amount of money in the initial stages of the investment than simply buying a stock might.

A less common but still potentially viable form of investment is the purchasing of collectibles and artifacts. This is something that requires some expertise on the part of the investor or that they consult with someone who has a great knowledge of the field that the thing they are purchasing belongs to, as it can be hard to judge whether or not something is going to be a good investment otherwise. These investments can be somewhat risky, as they tend to require upkeep and can physically depreciate over time in the same way that a house can. It is also not always easy to predict trends in terms of what is going to be in demand and what people might lose interest in.

You may also consider education an investment. While this is a little unconventional, spending money on a college education can be something that elevates you from one strata of society to another, by opening up doors for you vocationally that did not exist before. If you work hard throughout college and achieve good results in a field that is in-demand, then you are likely going to have many more opportunities ahead of you after graduation than you would have otherwise. With that being said, automation and digitalization of the workplace is rapidly changing the value and nature of a conventional college education, so this does depend on the field, and it is perhaps not as predictable as it once was. Nevertheless, a college education can certainly be considered an investment for these reasons.

Should I Invest?

Whether or not you should invest and the kinds of investing that would be best for you depend somewhat on your financial goals and current situation. However, it is advised that everybody invest in some way once they have the financial stability to begin using part of their income for such a purpose. It is generally recommended that you have a minimum of three months’ living expenses saved up before you begin to use your income for things other than necessities, so if this is not the case for you, then you should prioritize saving that up before you begin to think about investing.

Once your savings are in order, you should then think about your financial goals. In all likelihood, investing can help you to reach them in a number of ways. If you want to have a greater amount of money set aside for your retirement than you would otherwise have just through your income, then you can use investing as a way to slowly supplement your income over time. If you are looking for a way to make substantial amounts of money, then investing can also help you do so, though it involves much more risk to get such great rewards.

In order to figure out how you can make the most of investing in order to suit your needs, come up with a plan of where you want to be financially at different stages of your life. Then, you can start to figure out what type of investing is going to best suit you. For example, if you are interested in supplementing your income gradually over time, then a good idea is to invest in established companies whose income and success is stable and relatively predictable. That way, you are putting less on the line by investing in them than you might with a new company. On the other hand, if you want to make a substantial amount of money, then you might want to look into investing in new startups or swing trading, which can quickly give incredible returns if you are lucky and know what to look for. However, the risk involved in these types of investing can be too great for many.

Another thing to keep in mind when you are thinking about investing is having a diverse portfolio. This is usually advised as a way to minimize risk, because, if your portfolio is diverse, this means you have invested in different classes of assets and perhaps different kinds of investments altogether. If you do so, you are less reliant on the success of a particular industry or sector, so it is less damaging to you or your finances if a particular asset that you have invested in performs badly for some reason. It is important to strike a balance though, because a portfolio that is excessively diverse can spread you too thin in terms of time and resources, and it can potentially minimize your returns.

Understanding Value Investing

One of the beautiful things about the world of investment is that it’s deeply personal, and everyone can have an individual flavor. You only invest in what interests you, and even if that is something that others are interested in, the factors that drove you may not be what drove another person.

Investing is always about being strategic, and you need to define your own strategy prior to getting involved in it so that you’re not just blindly throwing money about the place.

While growth investing is one of several such strategies that are very popular, there is much merit in what may be considered the opposite. This is value investing. This strategy requires a good eye and an even better understanding of value. Why is this? Unless you can accurately assign a value to stocks that have a different market value, then you may not be able to pull this one off.

How Value Investing Works

The workflow of value investing is simple in explanation. All you need to do is to be able to identify stocks that you believe have an incorrect market value. More specifically, you must be able to identify stocks that the market values below a figure that you consider to be correct.

Though a good eye was referenced above, it means more than just the ability to look at a stock and make a guess. While you are guessing, there is work that goes into this guess, considering that you are using a stock’s intrinsic value to make your call.

The intrinsic value of a stock is simply your perception of it based on a simple formula. This formula includes finding the difference between the listed price of the stock and the option’s strike price. When you get that figure, you then need to know how many shares you can buy based on your options. Those two figures are then multiplied to give you your final answer. The formula can be expressed as follows:

  • Number of options x (listed stock price – option’s strike price) = Intrinsic Value

To help you better understand, consider the following example using figures. Imagine that there is a stock that is trading at $50 per share. Imagine also that you are currently the owner of five call options, which allow you to purchase 200 shares at a price of $40.

To find the intrinsic value, you can substitute the descriptions in the formula above for the figures, which results in the following:

  • 800 x (50 – 40) = $8,000

The exceptions to this rule are those stocks that have a share price that is less than the strike price. These stocks are known as being “in the money,” and they do not hold any intrinsic value.

Once you have this intrinsic value, you can assess it using an appropriate valuation method, such as a discounted cash flow analysis. Once you’re done, then all you do is compare the resulting value with the price of the stock.

You purchase the stock if the intrinsic value exceeds the market value by some amount that was pre-determined. This difference is known as the stock’s margin of safety.

You can view this in the same manner as you would buying an item that’s on sale. Of course, this does not include false sales that cut prices that were artificially inflated. For this example, you would need to consider items that are truly on sale, where there is a discount applied to the actual value of the item. Purchasing it during such a sale means that you save. You could even choose to resell this item at the full value once that sale is over.

The reason that this approach works with stocks is that the market value associated with them can move in a similar way. This means that you end up with a situation where the stock price becomes different from the stock’s true value. The demand for a stock is a huge driver of this price.

Why would you ever pay for something at full price when you know that there are times when it goes on sale? Would you not wait until that sale is taking place? Of course, the process isn’t that black and white with stocks, since there’s no way to identify a time in the year when you know a stock falls in price before it appreciates again.

This is the reason for the mathematical analysis techniques used in value investing. You are required to locate these sales on your own. Once you get it right and you keep these stocks for the long-term, you usually stand to gain quite a bit.

The Efficient-Market Hypothesis

This hypothesis, which is affectionately known as EMH, states that there is no way to achieve consistent alpha generation and that share prices adequately reflect the correct information. Therefore, it assumes that the value which a stock carries on an exchange is always a fair one.

Therefore, investors cannot sell stocks at an inflated price, nor can they purchase stocks that are undervalued. This would, therefore, mean that outperforming the stock market is impossible, even when strategies, such as market timing or expert stock selection, are employed.

What this translates to is that only the purchase of risky investments can yield higher returns for investors, so the concept of purchasing a stock that is “on sale” doesn’t exist.

Clearly, this contradicts everything that value investors are about, and so they don’t believe in it. Instead of subscribing to this theory, value investors believe that there is always the potential for a stock to be valued too high or valued too low for a variety of reasons.

One such reason is panic. If you’ve watched the stock market for any significant amount of time, you would’ve seen the response to bad news. Sometimes, there is less than favorable news that emerges about a stock, and investors start to panic and sell the stock in a frenzy. This is one of the factors that contributed to the Great Recession. This is an instance in which you could count a stock as being undervalued.

On the flip side, stocks can become overvalued when investors get too excited. Think back to the dot-com bubble, for example. There was a new technology on the horizon, and investors began to purchase the stock in a similar frenzy, though the technology that was driving the purchasing decisions was yet to be proven. Of course, this doesn’t mean that the technology must turn out to be bad, but such excitement in something that is yet to have logical merit is misplaced.

Value investors believe that there are many possible influences and sources of psychological bias that factor into investment decisions. Therefore, news such as product recalls can cause stocks to become undervalued. It is also possible for stocks to not get enough coverage from the media or analysts. Therefore, they become undervalued by virtue of a lack of exposure.

The Value Investing Mindset

Many people call value investors contrarians. That description is not misplaced, since such persons don’t act based on the behavior of the rest of the market. Of course, the motivation behind doing so has nothing to do with simply a need for conflict or to be different. It is a mindset that is based on meticulous observation and acting in the most efficient way that they see fit.

When the rest of the market is selling a stock, these investors tend to be purchasing or holding it. Similarly, when everyone else is buying a stock, they are often seen selling it or doing nothing.

The core principle is to buy a stock based on what it really is, which is a part of a company.

Savings Bonds: How to Access Your Money

As you may know, savings bonds have become the most popular investment in recent history. People enjoy investing in savings bonds because the U.S. government fully backs it, and it is the safest method of investing. Be sure not to underestimate any information given by a stockbroker, but also know that they may not be telling the whole truth.  Individuals often get the idea that they can cash in their bond in a short period. However, this is not true. Some brokers forget to leave out that there are penalties for cashing in too early. Never underestimate the system of savings bonds.

Everything You Need to Know About Savings Bonds

A savings bond primarily works just like any other bond, stock, or investment. However, it does have some varying aspects. A savings bond is seen as a loan you make to the United States government to pay for its borrowing needs. Saving bonds are very similar to T-bills; they are a form of debt security that is presented by the Department of Treasury. An excellent aspect of savings bonds is that they are the safest method of investment due to the government’s involvement.

Another differing aspect that savings bonds possess is that the interest rate is a fixed percentage that is set for a specified period. Some investors see this as a fall through factor. Regular stocks and bonds interest rates rise and fall with the market. Skeptics may say it’s the government’s way of making more money than they need; however, this is not true. The Department of Treasury set these regulations to ensure that the investment cannot fluctuate, which should be seen as an advantage.

For example, a regular bond or stock can rise or fall with the bubbles that take place in the stock market. You can gain a large sum of profit, but it also opens a window for you to lose money. With this in mind, the federal government wanted to prevent either situation from happening; therefore, they created a fixed rate to have an equal agreement on both sides.

Different Types of Savings Bonds

Necessarily, there are two types of savings bonds. Both of these savings bonds are purchased solely on their face value and must be held for at least two years. However, keep in mind that there are penalties if these are not held for at least five years. Once your five years are up, you can redeem your payment without having to worry about any penalties. Let’s discover the differences between the two types of savings bonds.

Series EE

This type of savings bond is considered to be a slight risk and is often used towards educational expenses, home-buying funds, retirement funds, or wedding expenses. Series EE bonds have a fixed interest rate that lasts for the entirety of the bond. After the first three months, the interest compounds monthly. The rate of interest is then added on to the face value of the bond, so you benefit in the long run.

Series I

Opposed to the other type of savings bond, this one has a different rate of interest. The interest rate is determined by two significant factors – fixed and variable rates. These two factors are determined by the current inflation rate of the economy. However, the fixed rate stays the same for the duration of the bond, but the variable rate is reset every six months.

Where to Buy A Savings Bond

Some people make the mistake of going the extra mile and speaking to various stockbrokers. Likewise, as of 2012, the Department of Treasury made it possible for individuals to purchase savings bonds online. You can research which program you prefer to buy your bonds through, although it is suggested to go through the Treasury’s website, as it is the safest.

The price range varies from a low rate of $25, all the way up to thousands of dollars. The decision should be based solely on the amount you wish to invest and if the face value of the bond sparks your interest.

Are you wondering about paper bonds? Well, since this generation has sparked quite an interest in the internet, the government finds it best to keep up with the trends. As silly as this may sound, the federal government does evolve its methods with the popularity polls of differing ways.

Also, paper bonds used to be bought for half of their face value; however, the government saw this as a “coupon” and wanted to put paper bonds to rest. As a result, you can currently only purchase personal savings bonds online.

Nonetheless, there is another way to buy a savings bond. If the thought of doing it all by yourself scares you, consider consulting with your local bank. Since specific federal organizations regulate commercial banks, they are allowed to sell savings bonds. Using a commercial bank may be more beneficial because they can lay out a spreadsheet of budget-friendly options for you. They also have access to your personal accounts and can configure the right investment amount for you. Loan officers and other bank employees can help you make the right moves to achieve your long-term financial goals.

Redeeming Your Cash

Now it’s time for the most exciting step of all: redeeming your cash. Not only is this the most intriguing step, but it can also be the most difficult. Cashing in your savings bonds can be done online or at your local commercial bank. Most people prefer to cash in or deposit their checks at the bank. 

Even though the check is sent from the government, there have been many fraud checks within the system that resemble the design of the checks from the Department of Treasury.

If you choose to redeem your money online, then be sure to use the Treasury’s website. How do you decide which way to utilize cash in your bonds? A rule to remember when investing is to stick with the same approach that you began your process with. For example, if you chose to purchase your savings bond online, then cash it in online. Be sure not to cash in before your five years is up unless it is an emergency. You do not want to have to face any consequences, nor have to pay any interest on your investment.

Aspects to Consider Before Cashing in Your Savings Bond

Even though cashing in is supposed to be simple, there are aspects you need to make a note of. First, it is vital to keep track of any investments that you cash in for tax purposes. You need to keep all records of any additional sources of income. Savings bonds are non-taxable. Therefore, it is essential to have proof the income was indeed a bond so that you won’t suffer from any extra taxes.

Another aspect to consider before purchasing a bond is if it is authentic and eligible. Some websites try to “sell” savings bonds that already have a holder. This can make for a very sticky situation. If you decide to cash in a bond that is not yours, there is a high possibility you are going to face the consequences. Are you wondering how to tell if a bond is legitimate or not? Some people despise the thought of purchasing savings bonds online due to the amount of fraud in the industry. However, if you properly and thoroughly do your research, you should be able to find out the details about each bond.

The last and most crucial aspect of purchasing a savings bond is transaction information. You or your agent must obtain every bit of information that relates to your sale. All savings bond sales should come with a transaction number just as if you ordered an item online. If you are unsure how to obtain detailed information about a bond, try visiting the Treasury’s website. It offers a guide on how to get started on your investment journey.

No matter which type of savings bond you decide to invest in, they are both low risk and considered the safest method of investing. A common problem with today is that people are often easily persuaded in a decision. The best way to overcome this aspect is by doing your own research to determine what the best move is for you. Think of investing like a game of checkers; slow and strategic moves win the game. Investigate and discover all the details about particular savings bonds that you are interested in.

If the thought of taking matters into your own hands scares you, then you may reach out to your local bank for some guidance. Never be afraid to ask for help, especially when your hard-earned money is involved. Try not to be too eager when embarking on an investment journey.

Investing: The Concept of Risk and Return

There are many different ways a person can invest and many different possible attitudes to have towards the practice. One concept that is discussed fairly widely and is very helpful in maximizing your success with investing is that of risk and return. In simple terms, the return you get on an investment is a percentage of your first investment, which comes back as a profit. In this context, risk refers to the fact that there is a chance that your investments will not produce a return.

Often, it is posited that the relationship between risk and reward or return in an investing context is direct. In this sense, the higher the potential risk, the higher the potential reward. Conversely, if one makes a very safe decision and opts to invest in something very low-risk, then there is also likely much less potential for reward. Which decision is best to make depends on the investor themselves, as different people have different investment habits and different levels of tolerance for risk, especially when it comes to their finances being at stake.

In general, when you invest, you want to try and find the best possible balance between the risks that you are taking and the reward you are hopefully going to get out of it. Some potential investments carry great potential for reward, but the risk is too large to make it worthwhile. This is the very basis of the idea of risk vs reward in an investment context, but it is important to understand that there are many different takes on the idea, and they are supported to different degrees. Our article goes into the concept in more depth and also explains some of the ways in which you can analyze both potential risks and rewards in a potential investment.

What Are Some of the Different Types of Risks in Investment?

The types of risks that a person can encounter when investing can be broken down into different categories. Generally speaking, they are going to be risks that are specific to a certain industry or project or risks that are related in some way to relevant competition, markets, or risk on an international level.

It is also important to note that there are different ways that risk can present itself to the investor. Individual assets are often riskier than other types of assets because they are potentially able to be voided. If a company goes into liquidation, then the shares that it has sold may become worthless, potentially instantly. This obviously makes them riskier to invest in, as there is less security for the investor if such a thing does end up happening. The same can also happen with government bonds if a country was somehow to cease existing or experience extreme political turmoil. It sounds far-fetched, but nothing is impossible.

Another form of risk in investing is that the returns that your investments generate are too small to keep up with the inflation that is being experienced. In this instance, you still receive a return on your investment, but because it has not kept up with inflation, the money itself is actually worth less than the money you initially had and then invested. Some assets also require fees to be paid, so this can be a risk in and of itself too. If you pay exceptionally high fees for a particular asset and then receive only modest returns, you lose money even if you have a positive return on the investment.

How Can Risk Be Minimized When Investing?

While it varies depending on the type of investment you are intending to make, there are some steps you can generally make to minimize the risk associated with your investments. However, these need to be balanced with your desired rewards, and it is also worth noting that they are obviously not entirely foolproof. It is also worth mentioning that if you put too much emphasis on minimizing risk, you may end up limiting your returns too. For example, a common way to try to minimize risk in investing is by diversifying your portfolio. This prevents you from being too dependent on a particular sector or asset class. However, you only have a finite amount to invest in assets, and if you choose to spread it very thinly, you can miss out on great returns if a particular sector performs especially well.

With the above being said, diversification of one’s portfolio is probably still the most reliable way to ensure your portfolio against risk that is specific to sectors or asset classes or to your returns in general.

How Should We Perceive the Risk-Reward Relationship?

Generally, when people talk about risk and return in investing, they refer to the concept as being a tradeoff. That is to say, that both are almost always found together and directly impact each other. It is perhaps best to approach each investment with a consideration of both the risks and rewards associated. There are also a number of factors that it is recommended that you consider before you make a potential investment, especially if it is going to be particularly high-risk. These include how likely you are going to be able to replace any funds that you may lose in the return of an unsuccessful investment, for example.

Another is how close you likely are to retirement. If you are relatively close to retirement age, then it may not be wise to make very risky choices in investing, as you are not going to have as much time to replace any funds that you might lose before you retire with less time left to work. Conversely, you most likely have far more money saved up than you would as a younger person, so it may actually be lower-risk in a sense for you to go into a investment with a higher potential for loss, as a substantial loss may not be as damaging to you financially as it would to a person who is less established.

It is also good to look at portfolios on the whole through the lens of the risk-reward relationship. Experienced investors, or those who know a great deal about investing and the market, are generally able to judge fairly easily the level of risk and reward that a certain portfolio will have with it. When doing so, the assessment can focus on the diversity that the portfolio presents or whether or not the holdings are riskier than they should be, or instead are safer and therefore do not maximize their potential for reward.

The risks that a certain portfolio may present can also be seen in the context of the portfolio as a whole. For example, a certain investment may be very risky, but if the rest of the portfolio is based on lower-risk holdings, then in that context, it may not be so extreme. In this sense, if the investor in question has a strong basis in investing over the long term and slowly building up their wealth or using investments to supplement their income, then it can be considered less risky for them to decide to invest in an especially high-risk asset, as they have a greater financial stability than others who invest over the shorter term and rely more on short-term or swing trading.

Some Specific Examples

There are several types of investments that can almost always be considered as offering both high risk and return. Some examples of these would be penny stocks or ETFs. If you are thinking about going into investing in these, then the best bet would once again be to do so in the context of a strong and diverse portfolio so you can minimize the risk you might encounter with these.

On the level of the portfolio, a portfolio that is comprised largely of equities is going to present you both with higher potential for risk and reward than others may. Another way of doing this is solidifying your position in one sector that represents a substantial amount of holdings in it. In order to further increase both the risk and reward that a portfolio presents, then you might choose for example to focus more of your investing into one particular sector.

In this sense, it is clear that many investors will deliberately go into riskier investments, as they know that there is a direct relationship between risk and reward in many cases and that, the higher the risk, the higher the reward is likely to be in a successful investment. There are also different asset classes in investment, and some of them are considered to be inherently riskier or safer than others, though this obviously depends somewhat on what is happening in the world at the time and if there are any other factors that are affecting the asset class itself.

For example, investing in property is considered on the whole to be a medium-risk prospect. There are many ways to mitigate the risk associated with investing in property, though. If you invest in properties by actually buying and selling on properties, then a good way to make this less risky is by having the properties inspected and renovated professionally. This ensures that you have as little trouble as possible selling them on and getting a return on your investment.

Shares are often considered to be high-risk, but this is obviously quite a sweeping statement, and in reality, the risk associated with a particular share depends a lot on the company itself, as well as the share you are going to buy. It is much less risky to buy a share from a company that is large and stable than it is to buy a share with a start-up, for example. However, if you are lucky, a share bought from a start-up may have incredible returns. This is why it is so important to consider the relationship between the risk and the reward for every potential investment you go into.

Investing Made Simple

It is something that many people talk about and practice all around the world. Many people have made their fortunes through investing, and it can be a great way to support yourself financially. Some use investment to supplement their income in a relatively steady and predictable way, while others closely follow the market and try to cash in on booms and busts that it experiences. Whatever the case may be, it is recommended that all people have some type of their income going into investments, as a type of security for their retirement. If this is not the case for you, fear not! This article covers the basics of investing, as well as some of the most common ways you can invest and methods you can use for doing so.

What is Investing?

In very simple terms, if you have put some of your money into something, you have invested in it, if the intention is for you to receive some type of profit from it. There are different groups of things you can invest your money into, and in this context, such a thing is known as an asset, which is the term we use in this article. There are four primary classes of assets. These are:

Primary Classes of Assets

Shares/Stocks

In fairly broad terms, when you buy a share or a stock, you are investing into a company by buying a tiny part of it. There are also different subtypes of shares, and the type that you buy determines how much of an influence you have on the running of the company, if at all. For example, if you buy a common stock in a company, then you should be able to give your input in key decisions, like a change in leadership, for example. The level of influence you have also depends on how many stocks you own in the company.

Property

Investing in property is also a fairly common practice, but it is not very easy to do this passively unless you are already fairly independently wealthy. Otherwise, it is often needed for you to get fairly involved in the process, though it depends on what kind of investing you are doing and what type of building it is. For example, many people purchase and renovate property before selling it on again. This can be fairly profitable, but it is not necessarily the easiest thing to do, as it requires a fair amount of time. It can also be quite a gamble, as there is no guarantee that your venture can be profitable, especially if you experiment with finding properties that are in poor quality in an area that you expect becomes trendier or more desirable later and try to fix them up with the intention of selling them on.

Cash

Money can be an investment in and of itself, if you put it into an account and let it accrue interest over time. This is not necessarily as profitable as other forms of investing, but it can be fairly dependable and stable if you simply leave the money in the account and don’t touch it.

Bonds/Fixed Interest Securities

Governments and companies often need to borrow money in order to support the economy of their nation. You can essentially lend money to a government or company through a bond. In exchange for this, you receive interest payments from the party that you have loaned your money to.

Other Asset Classes

These are not the only ways to invest, however. There are many other classes of assets, which may actually be more suited to you, depending on what you want to achieve and your knowledge of or expertise in any particular field. For example, if you have a particular knowledge of a certain type of collectible, then you may want to use that as a tool for your investing, and then purchase such items and subsequently sell them on at a profit. Some of the less common, but still profitable, asset classes are:

Artifacts and Collectibles

These can be a great way to diversify your investment portfolio. As mentioned above, if you have a good understanding of the level of interest in specific types of artifacts or collectibles, then this can be a very profitable type of investing. It is important to have some type of expert validation if you want to go into this type of investment, as it is not uncommon at all that people sell fake artifacts and claim that they are valuable.

Commodities

Investing in commodities can be done either by purchasing shares in them or actually buying the commodities themselves and then selling them for a profit in some way. This is usually goods like coffee or oil, and it is generally most suited to those with substantial disposable income, as it is a fairly expensive and risky type of investment.

What are Returns and How Can They be Earned?

In short, a return is what you earn from your investment, and depending on how you invest, you can receive them in different ways. For example, if you have invested in and own properties, then you can receive rent from tenants, and this is a type of return. Generally speaking, the most common type of return on investments is from shares, and it is earned in the form of profit from selling the shares at a higher price than you purchased them for.

What are Some of the Risks Associated with Investing?

You can mitigate much of the risk associated with investing by being careful with your choices and keeping track of the market, but it is not entirely risk-free to invest in general. How much risk you are actually taking and how predictable your returns are depend on the type of investing you do and what you choose to invest your money into. One of the risks associated with stock market investment, for example, is that the prices do not follow the trajectory you expect and that the selling price might not be as favorable as you expect when you actually intend to sell them. As such, it is wiser not to invest too much into shares until you are experienced in stock market investing.

When you begin investing, it is usually recommended that you choose a variety of different forms of assets or at least choose stocks that belong to companies in different sectors or industries. This is what people mean by having a diverse portfolio, and it is wise to do so in order to insure yourself in case a particular industry or economy that you have invested in suffers in some way.

There are many ways you can diversify your portfolio in terms of investing. Generally, the more diverse your portfolio is, the more security it can offer you, but it is not necessarily wise to invest too broadly if you are not entirely familiar with the different assets you are investing in. As such, it is best to have a good understanding of what you are going to invest in and consult with a financial advisor to find out what some good options are for you to put your money into. Alternative assets are a great option for diversifying your portfolio as well, as long as the assets that you choose are not too niche. However, that is not always a bad thing in and of itself, as long as there is still sufficient demand for the asset that you are going to invest in.

Gold is another popular choice for those looking to diversify their portfolio. There is not a consensus on investing in gold, as many believe that it is a dependable type of insurance that is always be intrinsically valuable, while others feel that it is an outdated investment that can be wasteful compared to investing in a more modern asset. However, it is hard to argue against gold being valuable at the present, and many financial advisors or publications tend to recommend that you devote between 5-15% of your portfolio to investing in gold in various forms. Many invest in gold by purchasing it in the form of bars or bullions, as this can be sold or traded in the case of economic downturn or catastrophe.

When is a Good Time to Start Investing?

Whether or not you are ready to invest depends on you and your financial situation. It is generally recommended to begin investing as soon as you have enough disposable income to do so, but this also can vary with regards to your financial goals. Before you start investing, you should think about fleshing out your financial goals or aspirations in some way so that you have an idea of what exactly it is you are working towards, and then you can think about how investing is going to help you to achieve that.

For example, if you are still in college, then it may be best for you to wait until you have graduated and maybe even pay off any student loans you might have before you start to invest. Conversely, if you feel you have enough disposable income already or would like to begin experimenting with investing here and there, then there is not necessarily any reason that you can’t start now. The most important thing is that you ensure you are entirely prepared to lose the money you invest, especially to begin with. There is always a risk that you won’t see any returns on your investments, and this is especially true when you are not experienced in investing and may make some poor decisions.

While the risk and reward of investing varies from person to person, it is generally advised that you have at least six months’ worth of money saved up before you start dedicating parts of your income to other endeavors. This means that you have enough money to live off of entirely for six months in case you experience some type of illness or other situation that prevents you from working, or if you lose your job, for example. It is certainly not wise to take risks with your money if you don’t have any financial security in case your investments or other ventures are unsuccessful or backfire.

How to Use Apps for Investing

It is wise for most people to begin investing when they have some disposable income and then maintain the practice until they retire. This is a fairly typical thing to do, as it allows for a passive and gradual acquisition of money which is set to the side until the person investing in the fund retires or stops working. Once this occurs, they have generally acquired enough money to subsequently live off comfortably for the rest of their lives. Investing is not a new practice, but the ways in which we can invest have changed greatly over the years, thanks to new technologies. Now, it is even possible to invest using apps. What difference have apps made to investing?

Simple and Straightforward

Some of the apps on the market are so comprehensive that they fulfil many of the roles in investing or other financial advisement practices and positions that were previously covered by an expert advisor. Many of the apps now available can not only advise you on how and when to invest, but also on how to build up a portfolio. They can also allow you to monitor the performance of your stocks, and some even give you the option to invest and divest. There are many different types of investment apps available, which means that investors of all levels of experience and expertise are catered to.

How Do I Find the Right App for Me?

There are so many different kinds of apps available for investing now that it can be a bit confusing to choose one or to know which app would be the best for you. This is why it is important to think first about yourself as an investor before you begin to choose an app to use as part of your investment practice. If you have never invested before, then this is a good time to start. However, if you have no experience whatsoever, it is wise to do some research and possibly even have a consultation with a financial advisor before you begin investing. With that being said, if you feel confident in your own research and skills, then there is no reason you can’t try on your own.

This article covers many different types of apps and what sort of person they suit the best. This is why it is important that you know what kind of investing would best suit you and how you can carry this into effect. You should also have an idea of your financial goals, and how investing can help you achieve these. Your financial goals depend on you, your personality and your financial situation at present, and you may not have an idea of these yet. This is not a problem, as long as you think about it now.

Your financial goals and profile are impacted by a variety of factors. In order to determine what your financial goals are, you need to have an understanding of your spending and financial habits in general so that you can change these if needed. If you do not have an understanding of these, then it is a good idea to spend at least a month tracking your spending closely, in order to have a clear idea of exactly how much money you earn and spend and the ways in which you do so.

Once you know how and where you use your money, you can start thinking about your financial goals for the future. You can think of timelines or dates and what financial position you want to be in when you reach these. These can vary greatly from person to person, and it is not necessarily needed that you know exactly where you want to be at this point in time. All that is needed is that you begin to think seriously and clearly about these times and objectives so that you can plan your future from a financial standpoint.

For example, if you are currently a college student, then your first financial goal may be to pay off your student loans. If this is not entirely realistic, then you can think instead about having a certain fraction paid off by the time you are a certain age. On the other hand, you may have never gone to college and are perhaps already working full-time. You therefore do not have any student debts to pay off, and if you have no other major debts, then you might want instead to think about having invested or saved up a certain figure by a certain age.

After you have figured out your financial aims and goals, you can then think about what type of app would best suit you as an investor. If you simply want to start investing for the first time and you would like an app that you can play around with instead of investing large figures, then there are apps for this. Conversely, you may have already tried investing, and you might want to begin trying different kinds of investing or working towards heftier financial goals. There are also apps to help you with this. Below are several different apps to suit different styles of investment and different levels of experience.

Some Investment Apps We Recommend

Here is a list of some of the investment apps we can recommend. We have chosen a selection for a variety of different applications and to suit a variety of investors. Note that this is not comprehensive, and you can find many other apps available on the market that are not covered here.

For beginners or those who want minimal fees

Robinhood is a good option. The app often allows for investment at practically no cost to the individual. There is no account minimum or commissions. The cost associated with beginning investing is often an obstacle to those who want to try it out, so this is a great option if that would otherwise be the case with you. Robinhood is often used by those who engage in swing trading, a practice where you closely monitor the market and often sell and buy shares at the last minute in order to maximize your gain. Note that this is a fairly risky practice and much less secure than more traditional, long-term investment in a retirement fund.

For those who want or need comprehensive customer support

TD Ameritrade may be the best option for you. The app is more expensive to use than some of its competitors, as it often charges at least $6 per trade. This is offset by the support its users have at their disposal, which far outstrips that of the competition. The app is a great option for those who do not mind spending a little more in order to feel that they have some level of security and expertise at their disposal through the app if they need it. Customer service is available at all hours and can be contacted via texting, messaging, or phone calling. The service also has hundreds of branches throughout America if you need in-person support. TD Ameritrade also offers a seriously impressive range of assets to its users.

For those who often shop online and would like to invest passively

Clink is a fantastic option. For every recreational purchase you make online, Clink takes a percentage from an account linked to the service and invests it. This is a great option if you have a considerable amount of disposable income and you are not trying to minimize your spending on recreational purchases. One drawback of Clink is that it does not offer a huge range of assets, but this is clearly intended to be a passive form of investing anyway. There are also no fees or minimum deposits, so it is a nice way to invest in smaller amounts for those who are not overly discerning when it comes to exactly how their money is to be invested.

For students or those with minimal disposable income

Acorn can be recommended. This is something of a novel app, which rounds up the amount made on purchases at specific retailers and then uses the balance to invest into the user’s account. For students, Acorn offers free management of accounts and portfolios, which can be very helpful to those with limited knowledge of or experience in investing. One drawback is the fees, which could be prohibitive for those with limited disposable income.

For those who want to invest in ethical or socially responsible options

Betterment is a service which specializes in just that. Now more than ever, people are more conscious and discerning of what they spend their money on and where it is going to go. If that is the case for you but you would still like to experiment with investing, then Betterment may be a great option. It scores much higher than its competitors when it comes to factors and criterion such as its Social Responsibility Index, which means that potential investors can rest assured that this is a great option for ethical investing. However, the minimum for the service is $100,000, so this is not necessarily the best option for those without considerable disposable income.

As can be seen above, there are a considerable range of investing apps available to those with different levels of experience and expertise in the practice. This is not a comprehensive list, however, and there is an incredible range of apps on the market today to cater to almost every type of person and potential investor. This is a vital practice to begin in order to ensure that your financial future is as secure as possible, and there are so many different services to choose from today.

Once you have an idea of your financial goals and the type of investing that would be best suited to someone in your financial situation, then you can begin to plan out how you want to start investing and how you would like your financial future to look. There are apps available to suit people who need guidance in their investing, people with limited disposable income, people with considerable disposable income, and so on. All that is needed is to consider the options at your disposal.

Preparing for Retirement: Savings Bonds

Many people find savings bonds to be a confusing topic. The younger generations often don’t completely understand what they do or why they are useful. Unless they go for a degree in finance, they may not even know until the term retirement comes up. Some companies don’t offer 401k’s, nor do they provide retirement plans. However, a savings bond could be just what you need to help prepare for your retirement.

Savings bonds have been one of the most popular investments that the United States created. The system was designed to give small investors a way to earn more profits on their money. The United States Treasury uses savings bonds to finance its day-to-day operations of the government. The U.S. has a large amount of debt, even today, and savings bonds help to minimize extra costs for the government and its employees.

Savings Bonds

The big question here is, what are savings bonds? A savings bond is a bond that is issued by the government and then sold to the general public. Furthermore, a bond is thought of as debt security. Debt security means that the issuers (in this case, the government) owe the bondholder debt. This method of investment is one of the safest systems in the industry. A fantastic aspect of savings bonds is that they are very negotiable, and the terms are set to suit every situation. Although, some individuals despise the system because they aren’t too fond of what the government has evolved into.

While the U.S. government’s other departments oversee the terms and conditions, the Treasury Department takes care of the fixed rates and other components. These bonds were created to be marketed to help cover the borrowing needs of the United States. The Treasury Department handles almost all of the expenses the government has. Congress sometimes steps in to handle the adjustments of specific bills and laws.  

Unique History of Bonds

The term bond was created in the period of the Revolutionary War. During this period, the U.S had to borrow money from England just to keep the country afloat. Many people during this time were struggling to keep food on the table, and the Founding Fathers didn’t want to see that happen.

A significant aspect that sets the original bonds apart from bonds today was that these bonds are marketable. This means that anyone from small investors to big-time firms can invest in a bond. Those who loan money to the government then receive a bond that pays an interest rate and can later be sold to another investor at a later date.

How high the interest rate is determines how much the bond can be sold for. If the price is high, the holder must place a discount on the bond to make up for the lack of profit coming in on this investment. When a holder puts a premium on their bond, they create competitive rates to stay on the same level as any other bonds that may be bringing in more earnings. This method ensures that their bond has an equal probability of being sold as opposed to other obligations on the market. Some investors prefer discounted savings bonds because the earnings typically rise within seven days after being purchased, due to the constant shifts within the market.

What other factors affect the price of a bond? While there are many determining factors, the most vital factor is the maturity of a bond. In this case, the term maturity means when the bond is due to be paid back in full and there are no more interest payments to be made. Depending on how the long the maturity phase has been in play, price of a bond will be altered. Prices typically become more aggressive in the system and may be hard to purchase. Many small investors struggle around this time.

A small investor is often seen as someone who falls within the middle or lower classes. The scale for large investors ranges from the upper-middle level to a higher rank in society. Typical careers in the middle class are people who work in education, agriculture, and so many more. Let’s say a teacher wanted to invest in a bond that has had a long duration in the maturity stage. This is great until it comes time to pay for the expenses like a child’s college, wedding, or a new vehicle. The fluctuation of bond prices makes certain life events challenging.

The Creation of Savings Bonds

Thankfully, the system hit a few road bumps when it came to the first development of bonds. Even though that doesn’t always mean things get better, in this case, they did. The savings bond program took a huge turn. Savings bonds were then non-marketable, meaning whoever buys the bond gets to keep it. When a savings bond was purchased, it created a contract between the buyer and the U.S government. Just like any other contract, this one could not be altered or transferred once everything was finalized. Likewise, this new method ensured investors that the value of the bond would never change, no matter any situations either side may face.

Once the savings bond meets its maturity stage, the holder receives the original investment amount and any interest that was placed on the bond. If there is any loss in the duration of the savings bond, then it is repaid or replaced. This specific aspect made the savings bond famous.

The Main Benefits of Savings Bonds

People invest in savings bonds for all sorts of reasons. Everyone’s situation and life, in general, are different. The most common reason for investing in savings bonds is for retirement. This may be confusing for some, but savings bonds are the safest investment for your retirement plans. As stated before, some companies don’t offer retirement plans or a 401k. Even if you have a retirement plan in play, consider a savings bond for an additional source of income. Many benefits come with using a savings bond for a source of retirement income including the following:

Increase in Tax Contributions

Most retirement plans have contribution limits. Annually, you may only be able to access a certain amount of money. However, a savings bond has no limitations and doubles your differed taxes each quarter. An aspect like this makes sure that you continue to grow your investments to ensure there are no profits lost. The limits that are set on a savings bond are there to make sure you and your family won’t run short on money.

No Taxes

A downfall about most retirement plans is that you still must pay taxes on the money you have been saving all your life. That is quite unfair to the public. The government saw this as a problem and decided to fix it. When savings bonds were created, they had to consider the fact of taxes. They thought it was unfair to borrow money from the public and make them pay taxes. Therefore, there are no state or federal taxes on savings bonds. Therefore, there are no taxes when you cash-in on your bond.

No Withdrawal Penalties

It is about time the government made minimal limitations. Most retirement plans include an age limitation when cashing in or pulling some money out. However, you must hold on to your savings bond for at least ten years before it can be cashed in.

The Safest Method of All

Every investor has named this method the safest one of all. As crazy as it may seem, the government has made sure that there are no fall throughs with the system they created. The federal government wholly backs savings bonds, and they are responsible for any issues that may arise in the contract.

Disadvantages of Using Savings Bonds for Retirement

While savings bonds come with many advantages, there are some problems and flaws with the system. Likewise, there is no flexibility when it comes to investments. Once the contract is signed, there is no way to change your investment limits. Some people see this as a problem, but the government operates the same way for every system they make.

For example, any bill that has been made cannot be altered unless another bill is passed. Therefore, savings bonds were made the same way. The government wants to keep the playing field equal to everything they do. 

All in all, everyone has high hopes for their retirement and prays they won’t have to deal with any financial issues. Even if your company doesn’t offer a retirement plan, there are always other options. Savings bonds are backed by the government, which gives investors a peace of mind that there won’t be any significant issues with their money. By using savings bonds, an individual does not have to worry about keeping up with current events like the stock market.

Savings bonds are a safer investment for you and your loved ones because of the restrictions, and the government fully backs it. The use of savings bonds helps not only the general public, but the U.S. government. The system allows the government to borrow money from investors and then pay them back later. Speculators see this method as a lesson to the public to understand what the global community stands for.

Everyone has debt in some way, shape, or form, even the government. Savings bonds are a great tool to contribute to both sides of society. Whether you’re a small investor or a large firm, savings bonds can be used for everything from extra cash in your pocket, to an addition to your retirement funds.

Bubble Trouble: Why Should You Care About Corporate Debt?

Corporate debt is one of those words that makes most people start to tune out. It sounds like a banker-type term that doesn’t apply to everyday investors, but to assume this would be incorrect. Financial markets are interconnected, and any significant event or trend that takes place in one affects the others. Meanwhile, events that happen in financial markets trickle down to affect the entire economy. This means lots of events that retail investors might not be aware of are often the catalysts that end up affecting their salaries, mortgages, and so on. And while there isn’t much that Main Streeters can do to change certain situations, there are steps they can take to limit their exposure in the event that they take care to be informed. Multiple factors affect markets at any given time, but outliers – such as record highs of any kind – often have the potential to have much greater impact in the event that they don’t pan out as planned. 

Buybacks, Cheap Debt, and Record Highs: Why Today’s Corporate Debt Market is Unique

Corporate debt, firstly, is similar to any other debt – except it’s generated by bonds offered by a company that are sold to willing investors. These investors, essentially, are loaning the company their money in return for something that functions much like an IOU. Bonds are different from stocks in that stocks are technically an ownership share in the company, complete with all the risks involved regarding whether the business succeeds or fails, while bonds are simply loans that are promised to be repaid in the future at their principal amount with interest. Because of this, bonds have historically been considered safer investments than stocks. However, while in the past, corporate bonds were typically issued to fund business investments – like research and design, acquisitions that would better position a company for growth, or hiring more workers to keep up with growing demand – many of today’s corporate debt issuances are used to fund stock buybacks rather than bolster the business economy, putting their ability to pay back those bonds at risk. Meanwhile, corporate debt is at a record high. After the recession in 2008, the Federal Reserve dropped interest rates to record lows in hopes of stimulating the economy. Low interest rates means cheap debt – in other words, the ability to borrow money at only one percent interest versus four. Businesses loaded up on cheap debt, and while the amount of corporate debt was hovering just around six trillion before the Great Recession, today it stands at a record high of $13.5 trillion. This figure is more than double the amount before the downturn and represents a little more than 64 percent of the United States’ GDP. In addition, while the amount of debt has increased, the quality of that debt has drastically decreased. 

Bond Ratings: Is It Junk?

Corporate bonds are given investment grades by ratings agencies, like Moody’s and Standard and Poor’s, so that investors can get a sense of the amount of risk they’ll be taking on when loaning out their money. Riskier bonds get higher payouts in the form of higher interest rates, while more secure bonds have lower returns. Divided into two main categories, bonds can be classified as either “investment grade” or “junk.” In the investment grade category, bonds have ratings that range from AAA to BBB – with BBB being the lowest rating possible to still be considered investment grade. From 2000 to 2007, around 39 percent of corporate bonds were BBB. Today, that percentage stands at over 51 percent. Anything below BBB, meanwhile, is considered junk – also known as high-yield or speculative bonds. Junk bonds, with lower liquidity, have less ability to pay back their bonds on short notice. And similar to the overall corporate debt market, junk bonds have also almost doubled since 2007, growing from around $700 billion to $1.2 trillion, or around 25 percent of all corporate bonds. In total, a little under a quarter of the entire bond market today is highly rated. The Organization for Economic Cooperation and Development (OECD), in a 2019 report, has emphasized that, “Compared with previous credit cycles, today’s stock of outstanding corporate bonds has lower overall credit quality, higher payback requirements, longer maturities and inferior covenant protection.” 

If corporate bonds default, so what?

While the increases may not seem like much on paper, in the second quarter of 2008, the U.S. recession started gaining steam with delinquencies that stood at just 4.5 percent of all mortgages at the time. A snowball effect occurred as reduced credit ratings and lessened liquidity affected banks and other parts of the financial system. Likewise, in the event that a company with corporate debt can’t repay its loans, it has a knock-on effect on other financial markets. An economic downturn – or higher interest rates, about which there has been much ado in the last two years – could cause highly leveraged companies to find servicing their debt significantly more difficult. When default rates increase, bond ratings are subsequently downgraded, and fixed-income investors (such those managing pension funds) are obligated by law to liquidate any substantial holdings that fall below investment grade. This is called forced selling, and it can create substantial price drops, as well as flood the market with bonds for which there may or may not be buyers. Liquidity crunches in the bond market, meanwhile, can have similar significant impact on the markets and entities connected to it, including the stock market and banks. Just like homebuyers with unaffordable mortgages ultimately affect the larger economy when those loans come due and subsequently default, corporate debt has an effect on the economy as well in the event those corporate loans go sour. 

In financial markets, it’s difficult, sometimes impossible, to keep track of everything that goes on behind the scenes. But the characteristics of some of these underlying fundamentals are sometimes the catalysts that cause events that have ripple effects on retail investors – those with retirement money in a pension fund, large sums invested in stock, or even a family business that’s depending on a flourishing economy and good business conditions. While the market may go up over time, it’s never a bad idea to keep one finger on the pulse of the underlying market conditions that could ultimately also affect your own investments. 

How to Invest in Gold

Something that may surprise you is that many people invest in gold in the 21st century. It may seem old-fashioned, but it is actually not uncommon, and there are many different ways that gold can be invested in. One of the primary arguments for investing in gold is that it is more stable and predictable in terms of value compared to many stocks, and this certainly makes it worth thinking about. This article covers some of the arguments in favor of investing in gold, and some of the ways you can go about it if it is of interest to you.

An Overview of the Value of Gold

Gold has long been considered one of the most valuable elements that humans can come by. It has been a symbol of wealth and prosperity since ancient times, and it has been a feature of many different currencies throughout history. Many ancient cultures have regarded gold as the most valuable thing they could come by, using it to adorn their most wealthy and powerful members of society. It was perhaps the Ancient Egyptians who first used gold for creating jewelry, but the first usage of gold as a form of currency was in approximately 560 B.C. This was when gold coins first came into usage, and the importance of gold in its relationship to wealth and finance has only continued to grow.

It was perhaps the British that were responsible for the ubiquity of gold as a form of currency and symbol of wealth becoming a global phenomenon. The British began to use metal as a currency in roughly 1066. At this time, they developed a system of coinage which was all based on the value of other metals relative to gold. They then went on to be a hugely dominant force in world politics and history, and they are therefore arguably the cause of the appreciation of gold worldwide as an extremely valuable mineral.

Later on, the US government developed a gold standard in 1792, which evaluated the value of everything based on how it corresponded to either gold or silver. Up until the 1930s, gold was actively mined for the creation of new gold coins in the USA, as this was what the currency was founded on. The tradition of the gold standard actually lasted all the way until the 1970s, when the US currency was no longer so dependent on gold. However, this has all entrenched the value of gold in our society, and gold is cherished to this day as a highly precious and coveted material. The gold standard is also continuously reevaluated and maintained, and it is arguably still fairly relevant in finance and world economies, though it is not an official part of the US currency anymore.

If you are in any doubt as to the value of gold in the world, you need look no further than major financial organizations like banks and the International Monetary Fund. These organizations all own huge quantities of gold, and it has recently been reported that many key banks have been acquiring gold to add to their reserves. This is supposedly due to concerns that they may have about the long-term prospects of the global economy, and arguably reflects that gold is still valued as a highly valuable substance by mankind. Its value is certainly more enduring than currency and is also often far more stable than stocks, for example. This is part of what makes it an alluring investment opportunity for so many.

Much of the appeal of gold to investors has to do with its historic use as a safe option for those who were going through some time of turmoil or strife. Gold has essentially always been regarded as valuable and prized, even when currencies have lost their value or civilizations have collapsed. Those who advocate investing in gold often point to such historical examples as a reason for retaining gold as an investment option as something that is potentially far more reliable than any other kind of investment. Its universal appeal in the modern world makes it even more attractive from this standpoint.

Many investors follow the news closely and subsequently base their investment choices on events unfolding in the world around us. Because gold is seen as a stable and safe investment choice, it is fairly common for people to invest in gold when some type of instability or uncertainty is reported in the global economy. While this is not necessarily necessary, it is not a bad idea to have some type of investment in gold, in case some type of economic catastrophe unfolds. In such situations it is potentially a kind of security or insurance.

Investing in Gold

There are many different reasons that a person might choose to invest in gold. Some people invest exclusively in gold, while others simply have investments in gold as part of their portfolio. If you intend to spend a good deal of time or resources in investing in general, then it is not a bad idea to have a diverse portfolio. This generally ensures less dependence on a particular sector, and gold is a good option as it is not directly attached to consequences that may arise in other sectors, like the housing sector or stocks in general. This makes it easier to ensure that your investments are always profitable, and it isn’t such a negative if a particular sector that you have invested in takes a hit in some way.

Some people invest for the sake of growth and others for the sake of complementing their income. The former are generally more drawn to investing in gold in the form of stocks, as these stocks are usually affected quite strongly by changes in the value of gold. It is therefore not the best choice for strengthening one’s income to simply invest in gold stocks, if your intention or preference is to have investments as a fairly passive form of acquiring wealth or capital. On the other hand, if you enjoy growth investment, then gold stocks are a fairly reliable choice. The nature of gold stocks means that, when there is an increase in the value of gold, the stocks become substantially more valuable, and you can generally get a better return on your investment in gold stocks than you might in physical gold or other types of gold investment.

Investing in the gold mining sector is also fairly common, but it can be something of a risky choice for investing. This is because the sector can actually be quite volatile, despite the generally consistent value of gold overall. As such, if you are interested in investing in the gold mining sector, it is worth being especially careful about the companies you choose to buy stocks from and do some research into them and their performance before you make a decision. You should look to make sure especially that the company has had low debt throughout its lifetime and that it has consistently had healthy flows of cash and growth. This is a fairly good indicator of a reliable company to invest in.

There are different stances to investing in gold when it comes to experts in investing and finance. Some say that gold is a vital commodity to invest in, and that maybe up to 15% of your portfolio should be some type of investment in gold. Others argue that it is an outdated form of investing, and that it is almost pointless when there are other more promising sectors that are growing rapidly and with considerable payoff to those who choose to invest in them. When it comes to physical gold, the argument is generally that it is worth holding because many banks do as well and that its value is generally fairly stable due to its rarity.

As far as physical gold as a form of insurance is concerned, it is often advised that you simply purchase a quantity of gold and hold onto it in the same way that you might an insurance policy. This is essentially in case of emergency so that you have something in the way of backup in case your other investments backfire. In that instance, the gold can simply be sold or traded, as its value is inherent and often considerable, especially if it is high quality.

If you are looking to invest in physical gold, there are different forms that it can be bought or found in. Common choices are gold bullions or bars. Bullions can also be bought in coin form, and their value is directly tied to the gold standard. They are minted in many different countries, and they vary in terms of their quality and therefore their value. Weights and sizes also vary, and this obviously affects the value of the physical item directly. A very popular choice among those who invest in physical gold is purchasing one-ounce gold bullion coins, as these are relatively convenient to store and generally not very difficult to sell if needed.

It is also somewhat common to purchase golds with particular historic or aesthetic value instead of purchasing on the basis of the gold standard. This is not as dependable or reliable as buying gold based on its intrinsic value but can be a considerably profitable investment too, if you know how to determine the value of such artefacts and how to store them so that their value is maintained or even grows over time. The most common example of this is original British gold sovereigns, which were the first version of the British pound. They are bought and traded fairly regularly around the world, which makes them a good choice for people looking to get into this type of gold investment.

While gold is often seen as something of a security in the form of investment by many, this does not mean it is always a good investment. Like anything else, its value fluctuates, and there have been better and worse times to invest in gold. It is sometimes better to invest in physical gold, but this obviously comes with its own risks. On the other hand, it is sometimes best to invest in gold stocks, but this depends on the performance of gold stocks in general and their relationship to other events globally.

A Beginner’s Guide: How Does the Stock Market Work?

The advertisements are all around you. There’s all the talk of saving your money and how doing so isn’t enough to secure your financial future. It’s always being said that, while saving is good, you must combine it with investments to achieve true financial independence.

One of the things you may have observed is that there is a huge buzz around the stock market. In fact, it seems to be a hub for smart investors. You’ve probably even heard stories of people who played the stock market and managed to profit immensely.

All of this must make you want in, right? If it’s such a lucrative opportunity, what do you have to lose? The problem is that you have no idea how to get in on it. You probably know a few of the variables and concepts, but how do you put them together in a manner that can give you a chance at successfully trading stocks?

When people say value investing or earnings movers, all you probably hear is gibberish. The truth is that many of the average investors in the world are also clueless to these terms because they’re irrelevant to their immediate needs.

While there is a certain level of complexity associated with stock trading, you need not understand all of it to be a success story. What you need to understand is how the stock market flows and the basics of trading.

Choosing Your Approach

The first thing that you need to learn and accept about investment is that it is a highly personal venture. Many people who invest and trade seem to be doing the same thing, but it’s highly likely that they aren’t.

Imagine the whole process as being a bus. You may observe that two people are sitting beside each other and riding the same bus. Does it mean that they got on at the same stop? Does it mean that both persons have the same destination? It’s very likely that the two people have different intentions, but they’re just using the same vehicle to their own ends.

This is largely how stock market investing works. You need to find and settle into your own approach to it. This is what governs the actions that you take. There’s the question of how you want to approach the investment and how much of the process you want to undertake on your own.

You may elect for as hands-off an approach as possible. This is facilitated by many brokerage firms that offer management services for your investment. Of course, the actions that your investment advisor takes depend on the goals that you have set and the way you want to approach stock trading. You can think of the investor in this sense as an extension of your will.

The Stock Market Basics

Once you have decided how you want to approach your trading, it’s time to hit the pause button before you open an investment account. Your first order of business is to understand the basic puzzle pieces that make up the stock market and how each is relevant to you.

First, there is the composition of the stock market. It is made up of what are known as exchanges. An exchange is simply a place where buyers and sellers can conduct their market activities around stocks. NASDAQ is one common example of an exchange. While the exchange is a facilitator for market tasks, it also adequately tracks both the demand and the supply of the stocks that are listed on it. The price of each stock is also recorded.

The workflow of this market is different from your traditional one where you go in, select what you want, and pay for it. Physical marketplaces work this way, and so do e-commerce sites. However, the stock market doesn’t work like this.

Instead, you find a broker who represents you on the exchange. The exchanges have specific times that they operate in, and your broker must act within the prescribed windows to meet your needs.

Market Indexes

Sometimes you may hear people expressing the state of the entire stock market. Usually, they state that the market is either up or down. While it may sound like it, they are not typically referring to the stock market in its entirety.

Instead, they are referring to what is known as a market index. Market indexes provide useful information for monitoring, since they track groups of stocks. These groupings can be based on the whole market or on various sectors within it. While these market indexes can technically only speak for the members of the stock groupings, they tend to be used to express the state of the overall market.

You can think of it in the same manner that a survey is taken to understand how people in a state feel about a policy. It’s not realistic to interview every person living in the state. Therefore, a group is created and used as a representation of the entire state.

Many investors use the information that they gather from market indexes as a map for their stock trading decisions.

The Art of Trading

If you’re investing in stocks, there are a couple of ways to go about it. The simpler route is to accumulate a variety of stocks and index funds that you retain indefinitely. This diversified portfolio tends to be recommended, as it minimizes risk and is more likely to yield consistent returns.

However, the riskier approach is the one that is used by investors who are interested in “playing” the stock market. These are the investors that take part in the trading of stocks. Instead of retaining your stocks as you would in amassing the portfolio referenced above, you would engage in routinely buying and selling various stocks. The idea is to buy and sell at the right times to maximize your returns.

Short-term market events drive these stock prices and the moves that happen surrounding them. Your intention as a routine stock trader is to buy stocks at a low cost and sell them for a profit. The frequency with which you buy and sell can vary. Some people make less than 15 trades in a month, while there are others that are making several trades each day.

Of course, all this is not a bunch of random activities. Many of the most successful investors are great information collectors, and they are very observant. There are numerous tools that can be used, and when these are combined with research, they can yield some of the best investment returns imaginable.

Bear and Bull Markets

Both animals are fearsome, but in the context of the stock market, one may be more desirable than the other, depending on your approach to investment.

Be that as it may, it is almost universally accepted that bear markets are much more unwelcome than bull markets. When a bear market is in effect, there are tumbling stock prices across the board. If you were to look across various market indexes, you would see stock prices plummeting by 20% or more.

If you were not an investor prior to 2009, then you’ve never seen a bear market in action. This is because there has been a bull market state since that time. In fact, this is the longest bull market period in the history of the stock market. However, at the time of this article in early 2020, the US may be approaching a bear market again, as it is seeing the largest dip since the last bear market.

Of course, a bull market is the opposite of a bear market, which means that there is more appreciation in stock prices across the board.

These market states tend to alternate. Therefore, a bull market is followed by a bear market and vice versa. The state of the market is typically an indication of the economic state. Bull markets happen because there is economic growth, which breeds more confident investors. A bear market is the result of the fear of investors. The fear makes them stand back, and so you are likely to see a decline in the economy.

So you may be wondering if the alternating doesn’t usually result in making a loss when bear markets come around. Your worry, in this sense, is understandable, as your growth can come to a screeching halt during a bear market phase. What you should know is that this is only a short-term problem, since bull market phases tend to be the longer of the two.

Stock Market Correction and Stock Market Crash

A stock market correction and a crash both refer to declines in the overall stock market. However, one is more impactful.

A correction is the less worrisome of the two occurrences. When a correction happens, the market drops by around 10%. The drop is smaller, and it feels more gradual.

When there is a stock market crash, the experience is completely different. As the name implies, the drop is very quick, and the amount tends to be significant. In a crash, stocks can drop across the market by numbers that are upwards of 20% in a day.

A stock market crash can breed the fear that results in a bear market, so you must be prepared for such an occurrence.

Open Your Investment Account

Now that you have a general idea of how the stock market works, the next step is for you to open your investment account. Such an account is mandatory for your investment in stocks. You can use a brokerage account if you want to be more involved in the action. If not, you can open your account via an investment advisor.

While you can use an investment institution, you also have the option of going online and using a robo-advisor.

Note that the brokerage account is less expensive, but going this route means that you need to have a better understanding of proceedings.

When you use an advisor, you can get all the benefits and drawbacks of investing in stocks without needing to get involved in individual investments.