Whether you’re new at the investing game or a long time player, putting your money to work is essential to your financial success. Investing can be risky without doing your homework to minimize risk.
“Maybe you’ve been keeping your money stuffed under your mattress or in a savings account — those are options — but a better way to save for longer-term goals is to invest. By investing, you can better combat inflation, increasing your chances of being able to afford the same amount of goods and services in the future that you can today.
One way investing makes your money work for you is taking advantage of “compounding.” As explained in NerdWallet, “Compound earnings means that any returns you earn are reinvested to earn additional returns. And the earlier you start investing, the more benefit you gain from compounding.”
Investing means “the act of allocating resources, usually money, with the expectation of generating an income or profit,” according to Investopedia. By investing, the user takes their money and places it into something else, hoping to gain more profit in the long run.
The investment we hear about most often is stocks. Stocks can be a volatile and like anything else in life, require plenty of research before committing a large investment. Be sure to look into the stock perspective and get all of the information you can on a subject before investing your hard earned money. Avoid making decisions on what to invest in with your emotions, rather do the necessary research to feel confident that your prospects will do well when invested in. Bonds can also be risky so be sure you research the financial strength of the issuer.
Do enough research to really understand what you’re getting into. For example, a company’s “market capitalization” is a method or valuing a company. “Small-cap companies are generally valued between $250 million and $2 billion, and mid-caps are valued between $2 billion and $10 billion. Large-cap companies are those valued at $10 billion or above. Sometimes though, market cap is based more on perception than a company’s fundamentals. That’s because some investors value stocks based on their intrinsic value, while others approach them based on their apparent popularity, or market sentiment,” according to Investopedia.
One common measure of a company’s size is its market capitalization (aka “market cap”). This is the value of the company if you multiply the total number of outstanding shares by the company’s current share price. For example, if there were 30 shares in Eric’s Electronics and the market price was $4, the company would have a market cap of $120 (30 shares x $4 per share = $120 market cap).
There are many different resources available to use for investing. Do your research and look into the different tools available and specific to your needs. Risk is always present in investing, but the way to assure your utmost safety is by taking precautions and preparing yourself in every way possible.
Even when you do everything correctly you can’t control everything, especially the economy, and you may experience a loss with your investments.
Investing the right amount and in the right products is essential. Never put all your money in one basket and never invest more in one place than you’re willing to lose.
Choose carefully when you purchase stocks. Every stock is different. As a general standard, there are 11 sectors in the stock market, as defined by the Global Industry Classification Standard, a common tool used in the financial world. There is a large variety of what you can invest your money into, with hundreds of possibilities. Look over your available prospects and think over your decisions. And diversify!
Before you get too heavily into investing, set a goal to save at least three months of your income at the Credit Union. Accumulate this money in a Money Market Account and when you accomplish this first goal, you’re ready to be a big time investor.