The first step to financial stability, investments! Looking out for your future is a responsible option. No matter your age, this choice is always for the best, for you and your family. You don’t start investing like an expert. That is rule 101. You learn as you go. But if you are a beginner then how can you avoid failure?
Research. Look for people who are already in the business, read their stories. To get you started and familiarize yourself with basic rules here are some tips and pointers you can follow. Firstly, you need to familiarize yourself with the important but common terms in investments.
- Price toEarn Ratio:
It is the price per ratio /earning per ratio. Investors and analysts use price-to-earnings ratios to determine the relative value of a company’s stock in Apple’s comparison to Apple. It can also be used to compare companies to their own historical records, or to compare overall markets to each other or over time.
- Market Capitalization:
Market capitalization to define simply is the amount that will cost you if you were to buy every single share of the stock of a business that had been sold at the current market price.
- Return on equity:
Return on equity provides a simple indicator for evaluating returns while funding in private company. By comparing the company’s ROE with the industry’s average, you can determine your company’s competitive advantage. ROE also provides insight into how company management uses equity financing to grow its business.
Now let us get back to investing. Whenever you start investing there are always two questions that lead your thoughts.
- From which point to start?
- How to start from that selected point?
From which point to start?
Investing, in a nutshell, is laying your assets or cash today, in hopes of getting more assets or cash returning to you tomorrow, next year or decade.
Now factors such as time, risks and inflation play a vital role in making a “good” investment.
Most of the time, a good investment is made by investing in Productive assets.
What are productive assets? Assets that through off the surplus money from some activities. For example, Productive assets are apartments or buildings. After you buy this building you not only own the building but the income that comes with it. Like rent or services cash. This cash can keep your life steady till you decide to sell it when it is market price is up or you get a decent deal.
Productive assets are not all pros. Every asset has its own cons that come with it. Like tax rules, traditional legislation, etc.
Productive assets are divided into 3 major categories.
3. real estate
Using stocks for investment
Investing in stock means investing in business equity or ownership. Having business equity means that you are entitled to a share in business profit and loss alike. It is one of the simplest forms of investment where people are looking to make money without using a large amount of leverage.
You can have business equity in privately held business or a publically traded business.
- Private stocks:
Such companies don’t have any public market shares. These are highly risky and highly awarded. You need to have a business idea and work on it from scratch. Plan your finances, make strategies and sell your idea. If these work out then you get a highly stable and profitable business. But similarly, these are difficult to establish and require constant attention.
- Public stocks:
In an attempt to get money from market private businesses sell some part of their business in the public market in hands of outside investors. This is called Initial Public Offering. Public can buy those shares and become an owner. This investment is highly based on stats. Even a slight rise or fall in stock prices is a game changer in the market price of the stock.
Using bonds for investment
When using bonds as an investment you are giving money in return of agreed interest as an income. Although a number of other ways are also available to earn interest on your money including certificate of deposits, money market, peer to peer lending, U.S. savings bonds and more. You can hire an investment adviser to get a proper advice about the most profitable investment option.
Using real estate for investment
Real Estate is one of the oldest and still thriving investment options out there. You can either buy something or then sell it for a better price or you can rent it out to different people and keep earning periodically.
How to start from selected point?
Once you get the first step down, now you choose how youwant to own these investments.
Straight investment: you buy the shares of individual companies directly.
Shared investment: In such a strategy a big number of investors collectively pool their money at one point and then invest it to buy shares and share profit and loss equally just like mutual fund or ETF.
Finally, where wouldyou keep these assets? This is a major key in your investment journey as itdefines how your assets will be taxed.
Taxable accounts: You pay your taxes along the way. Your money is not restricted and you can withdraw or deposit as much as you want. But you have to pay your tax along with it.
Tax cushion: If looking a tax deferred investment then 401(k) plans and Roth IRAs can provide a number of benefits. Some investments also allows tax deductions when you make deposits for that investments. In addition to that some investment plans are tax free which means that you investment deposit money is taxed but withdrawals and profits will never be taxed.
Asset Protection Mechanisms: This is another approach where you maintain your investments by using different structures or entities just as trust funds. This technique holds some major benefits especially when you are critical about the usage of your funds. Moreover, if you own a big real estate investment or any operating assets, then you must engage with an attorney to setup a holding company.