This is a contributed post from Ellie Jo.
Investing can yield greater returns than simply saving money in a bank account. In general the greater the potential for returns the greater the potential for a loss. To help you decide if investing is for you, here are a few basic investments explained at a very high level:
You can buy either government or corporate bonds. Government bonds come in two forms, treasury/federal, or municipal/state, city, local government. When you purchase bonds, you are purchasing a debt obligation generally between one and ten years, although you can purchase bonds for as long as thirty years. You are, in effect, lending money to the institution, and for this, you receive interest every year or so, depending on the agreement. These payments are known as coupons, as you get this for as long as the agreement lasts. At the end of the agreement, the bonds mature, and at that point, you get the initial investment paid back to you.
Government bonds are generally less risky than corporate bonds and can be a great investment choice for conservative investments. However, corporate bonds usually have a higher return. Corporations, though, can fold, meaning that you lose everything. Sometimes even municipalities declare bankruptcy. Bonds are rated by ratings agencies.
There are many types of bonds, but government and corporate are the most common and basic.
Buying stocks simply means purchasing a share of a company. When you buy a stock you are expecting the company to become more valuable and/or for the company to share its profits with you in the form of a dividend. There are many companies to invest in and each comes with its own risks.
Mutual Funds and Exchange Traded Funds
Mutual Funds and Exchange Traded Funds are pools of investors buying stocks and/or bonds. They are a great way to diversify the risks related with just buying a few companies. They are also managed by professional money managers or they simply track major indices. Either way they are delegated investment decisions to professionals, instead of you making the trading decisions.
If you are someone who has a little entrepreneurial spirit and has always wanted to run their own company but is concerned about the risk, then maybe a side hustle is a great idea for you. It gives you the chance to set up a small business which you work alongside your current job. Some great examples are setting up your own blog, which you can easily do using a platform such as Wix or WordPress, among others. You do not need to understand code to create a website this way.
If you have a spare room, perhaps you can advertise it on Airbnb. Maybe you can start buying and selling online. If you have any specialist knowledge, it may come to the fore here, especially if it is in collector items. Again, you can even set up your own website to sell items you have discovered. There are so many great side hustles. They are not only a great investment for your money, but it is also an investment in you and your entrepreneurial abilities. Getting good at it will take time and dedication, but if you can turn this side hustle into a full-time business, you will be rewarded.
This is still a rather new and volatile form of investment. However, it has been profitable for many. Online transactions are fast becoming the main form of transaction globally, and new technology and digital currencies are being created to make these transactions easier. Technology such as blockchain, which has been created around digital currencies, makes buying and selling online faster, more efficient, transparent, logical, easier to follow, etc.
There is no doubt that technology, including digital currency, is gaining popularity. Cryptocurrencies may well be a great long-term investment. However, there are a few things you need to consider. At the moment, they are not regulated by any sort of governance, but that may change in the near future. Meaning that they will probably be more controlled, stable, and potentially less likely to rise in profit as Bitcoin did recently. Cryptocurrency has many risks, but they also offer opportunity.
Real Estate is a great tried and tested method to make more of your money. Whether you are just going to invest in your own home or begin a property empire, there are a lot of potential earnings to be made. You can buy to lease out. However, you need to ensure that you have ensured that the home is set up as mandated in real estate law. You also need to set up the right kind of protection to protect yourself from bad tenants. There is always money in terms of buying to do up to. This can be especially profitable if you have a background in construction. You can always get home cheaply in auctions. However, ensure you do your research and look at things like the HMDA Compliance Audit, for example.
The investments in this article are the most basic and this overview was very high level. Be sure to check with your financial advisor to fully understand the risk and return of each investment. Also understand your risk tolerance and how those investments line up with your risk appetite.