You’re at that age when you’re starting to consider your retirement funds. You have the money now but don’t know how to grow it so that you’ll still have money when you grow old. While trustworthy advice from financial managers is helpful, you still need to learn how to grow your money on your own first. The best way to do that is to invest it. But how? Where do you start? Let this article guide you.
Financial institutions act like banks. They keep your money for a specific period. That money will grow based on the interest rates that the financial institution provides. Unlike banks, though, they provide higher interest rates, so by the time you take or withdraw your money, it will be bigger than before. That money is your investment.
Investments are important if you want to be financially independent. It doesn’t matter what age you are. Investing early can be advantageous, but it’s never too late, even if you start now.
Different Types of Investments
As an aspiring investor, you need to start small. Be very basic at first while you’re learning. For starters, here are some basic forms of investments:
- Cash. The money you deposited in your bank is considered an investment.
- Mutual funds. A mutual fund company, or a portfolio manager, will pool your money together with other investor’s money and use that to purchase securities. Securities is an umbrella term used to define financial instruments such as stocks, mutual funds of others, exchange-traded funds (ETFs), and others.
- Stocks. Shares of stocks are also common with investors. They let you take part in a company’s success through rising prices of their stocks in the stock market.
- ETF. Exchange-traded funds are securities exchange-traded in a stock market, thus its name. ETF shares are traded throughout the day like stocks are, unlike mutual funds traded only when the stock market closes for the day. They are currently popular with $507 billion invested into ETFs in the US in 2020, based on NASDAQ
- Alternative assets. Real estate and commodities are considered alternative assets. You can invest in real estate through different methods. On the other hand, commodities are tangible objects such as crude oil, gold, and silver.
There are many other forms of investments, but most of them require high initial investments.
The key to growing your investment is through diversification. For example, if you choose to invest in mutual funds, it will be best to invest in several mutual funds instead of only one. You can also diversify your investments by using not just one but many. Combine different kinds of investments, for example.
According to Entrepreneur magazine, portfolio diversification has many benefits for investors. It grows and protects your investments, provides more growth opportunities, and lowers your risk of losing money.
A collection of assets and investments is called a portfolio. Others call it a financial portfolio. But whatever others call it, you also have to diversify your portfolio to maximize your returns. This means that with a diversified portfolio, you have several sources of investment returns. Return of investment (ROI) is the money you earn through your investments.
Portfolio management doesn’t just involve monitoring your investments and assets. It also means the proper allocation of funds for your investments, execution of investment strategy, understanding the risks, and designation of your ROI. Designating your ROI means where do you put your earnings? Where will your assets go? Choosing the right type of investment account matters.
You’ve gone through the first step: to have basic knowledge about investments and terminologies related to them. Now you need to understand the techniques and strategies to move forward.
Techniques and Strategies
There are three stages to managing your finances.
First is the actual investing stage, where you construct your portfolio and allocate your assets. Next is the ongoing management stage, where you evaluate your portfolio, monitor your investments, re-balance your funds, readjust your investments, and plan for the future. The final stage is where you enjoy the income of your hard work. This is where you create a plan for your retirement income and apply strategies to further grow your wealth.
Putting it All Together
As you decide which investments to use, what assets to maximize, and which funds to invest in, you will learn more in the process. Remember that investing, waiting for ROI, and creating a diversified portfolio will take time. Not days, weeks, or months. This time-intensive process will require years before fruition.
Considering the time and technical know-how it requires, getting the help of a financial advisor can make everything easier. An expert can also help you map out a plan for your finances until and during your retirement age.