Invest in your future. Invest in your career. Invest in your dreams. Investing is a very used verb to talk about goals and plans – but when it comes to money, do you know what investment is?
Investment is, in short, taking an amount today and trying to turn it into more money in the future.
Like? It’s not magic, but understanding how the financial market works and choosing a category or type of investment that fits your profile.
There is a myth that to start investing you need to already have a lot of money – but that couldn’t be further from the truth: anyone can invest, no matter how much money they have.
What It Takes To Start Investing
- The first step is to set your expectations: most of the time, investments pay off in the medium and long term. Don’t expect to make a lot of money overnight;
- The second step is to know that investing needs to be a habit: always set aside an amount per month, however small;
- The third step is to look for a financial institution (bank or broker) and evaluate the options they offer.
What is investment: know the different types
Making an investment means setting aside an amount of money and putting it somewhere where that amount pays off over time.
It is possible to invest in real estate, for example, invest in buy-to-let properties and selling it for a higher price – but this is far from being the only (or the best) option for those who want to start investing.
Those who have little money and no experience in the market can – and should – have some kind of investment. In that case, there are several financial products that are easier to manage and understand.
If your goal is to keep the money yielding, without having the trouble of managing it often, there is certainly a type of financial product that fits your profile.
What are financial products – and how do they make your money pay off
Financial products are different options that common people have to profit from everyday operations carried out in the financial market.
When you invest your money in a financial product or asset, you are, most of the time, lending that amount to banks and financial institutions to carry out different types of operations.
That money you “borrowed” is returned with interest – which is nothing more than how much your investment yielded.
In other words: you choose a product, put your money in it and, depending on the type of application, you know exactly when you will earn more over time (in the case of Fixed Income products. See more about this option below ).
But beware: every investment is a gamble. The more risk you are willing to take, the greater the payoff if it works out.
Understand the risk of investments: Fixed Income and Variable Income
Each type of application has its own risks, yields and terms.
Deciding which products fit your profile depends on your knowledge of the market, your goals, your current financial position, and how much risk you are willing to take.
Basically, the financial products you can invest in fall into two types — and the risks vary between them:
In Fixed Income , investors have more clarity on how much their money will yield.
Fixed income investments can be of two types:
Prefixed – when there is a certainty about what your return will be at the end of the application, e.g., 6% per year.
Fixed rates – when the income is linked to some other index of the economy. In this case, the investor knows that his money will yield according to something specific – but he doesn’t know exactly how much because this indicator has its fluctuations.
As the name implies, variable income investments have rates of return that vary over time. In other words: profitability varies all the time, which means that the risks are greater. Here, the return is greater, but the possibility of losing is also great. The stock exchange is the market’s main variable income asset.
How to choose: fixed income or variable income?
At first glance, Equity Income may seem more advantageous than Fixed Income as it provides better chances of earnings. However, you need to be careful with this idea.
In the financial market, the return of an asset is proportional to its risk . That is, the greater the return possible, the greater the risk.
The stories of investors who became millionaires by investing in stocks are famous. But that didn’t come without a risk: in the same way, there are investors who lost everything overnight by betting on the stock market.
The stock exchange is an example of an extremely volatile market. Investing in stocks involves cold blood and knowledge to deal with swings.
On the other hand, Fixed Income offers constant and stable income, which gives the investor more peace of mind, especially when thinking about the long term
Therefore, if you are going to start investing now, the recommendation is to give preference to investments in Fixed Income.
With them, you can create an emergency reserve and don’t run so many risks – besides being able to withdraw the amount when you need it.
When this reserve already exists, you can start thinking about investing in other less safe products with more interesting returns.
We summarize the important points:
- Investment is a way to make your money pay off over time;
- There are several forms of investment, but it is important to understand that each one has different risks and returns;
- Banks or financial institutions offer different investment products to their clients;
- Within the category of financial investments, there are two main types: fixed income and variable income;
- Fixed income ones have a certain income, while with the variable income option, the client does not know how much he will have at the time of redeeming the investment;
- As a general rule, the greater the risk, the higher the return. For those just starting out, it is recommended to invest in lower risk options with a more guaranteed return (even if a little lower) – such as fixed income products.
Author Bio: Jonathan is Founder of SPV Mortgages. He can help you find and secure the best limited company mortgage options to push your property investment dreams forward. As specialist mortgage brokers with over 10 years of industry knowledge, he has helped experienced landlords and first-time investors across the country; saving you time and money in tracking down the best rates.