Something readers often ask about is, where do you start when you want to invest? The investing world can seem like a jungle to the newbie investor, and figuring out how one becomes a successful investor can be tricky.
First, you have to understand the markets, how they work, and the different types of investments available.
For every investment, there is an amount of risk involved. As a general rule of thumb, the higher the risk, the higher the returns.
There is also a need for you to be involved in your investing, or to be willing to pay for someone to manage your investments. While that can be a good choice when you are just starting with investing, over the long term, the management fees can eat through your profits.
There are many ways to invest your money. The most common investing asset classes are stocks, bonds, currencies and commodities.
You will have heard the saying “don’t put your eggs in the same basket”, but diversification can mean investing in a varied portfolio of bonds, or commodities.
Buying shares means you partly own a company. So if the company does well, the value of your share in it will increase, and you may receive dividends after a successful quarter. The same way, if the company is in trouble, the value of your share can decline.
Bonds on the other hand are less risky, in that they offer you a return, as you would lend the money to the bond issuer. A safe way to invest in bonds is to pick government bonds, or bonds from major companies. They offer a smaller profit since the investment presents a lower level of risk.
You can also invest in mutual funds, which is a pool of investors joining assets under the scope of a fund manager. You will benefit from the extensive knowledge of a fund manager, but will have to pay a higher fee for the privilege.
Index funds can be an easy way to invest in a variety of companies, as they track the progress of an index, such as the S&P500. In order to minimize your risk, you can invest small amounts every month, and dollar cost average your buys over time. Index funds are generally pretty cheap to trade.
Last, but not least, another interesting option for the beginner investor is forex and binary option trading. You can give it a try on demo accounts before investing your hard earned cash, which is highly recommended, so you get used to the platform and invest in confidence.
There is a lot of literature on the subject, such as the Banc De Binary blog, where you can find a wealth of information about trading binary options. The platforms to trade binary option allow you to manage your level of risk, and the tight spread means that trades can cost you much less than investing in stocks.
Binary options have a short to mid term time frame, and you know in advance how much you stand to earn if the trade goes your way.
Whichever type of investment you pick, make sure you invest small amounts at first, until you are comfortable investing bigger amounts.