The Fundamentals of Investing and How to Get Started

| June 20, 2017 | 0 Comments

Investments are something that everyone knows about, but a very small percentage of the world actually understand how investments work and how to take advantage of them. The finance world can be a complicated one to master or even grasp. It’s intimidating, failure is common and although the idea of investing is relatively simple, there are countless difficulties with breaking into the industry. But if you look past the complicated tech lingo and the challenges involved with investments, you’ll find that it’s relatively simple to get started and there are so many types of investment that you’re always spoilt for choice on how to approach the practice.

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What defines investing?

The concept of investing is fairly straightforward. You put money into something and hope to see a return on your investment. For example, you might give a friend £500 to start a business. That would be considered a loan and, if their business is successful, you can ask for interest on top of the loan so that you receive £700 back. That’s a very simple concept of an investment but the principle is the same even when you scale it up to the professional level. You’re putting your money into something and hoping for its value to increase so that you can later sell it or receive interest.

Investing is a time-efficient way to make money

Most of us are taught to work hard when we’re young. In fact, most of us have prices on our working hours, meaning our time is valuable and we’re essentially paid for that time. For instance, you might have an hourly wage of £15 and you could make up to £150 if you worked a 10-hour work week. Unfortunately, that’s the maximum you could make and no matter how many hours of work you put in, you’re always limited by this hourly wage. You could ask for a raise or receive a promotion to increase this hourly wage, but you will ultimately be limited with how much work you can do.

In addition, having money and not having the time to spend it can become depressing. You spend so much time working and the only time off you have is your usual month of holiday per year. As an investor, you spend less time working and gain more money, but it doesn’t come without risks. However, if you can get over that fact, then spending your time and effort on learning how to invest your money can be worth it. You’ll make more money in less time and you can spend it however you want and on whatever you want. Investments are the only way to maximise the amount of income you earn with the least time spent and it can easily exceed the most common highest-paying careers if you put in enough time. However, this also means that the more time you put in, the higher your potential income increases.

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Investing is not gambling

Many people associate investing with gambling, but this is a very short-sighted way of seeing it. Gambling essentially means that you put money at risk in order to win a larger prize. Although this sounds similar to investing, the one defining feature of gambling that is not present with investments is the uncertain outcome. For example, if you’re gambling on a coin flip, then you have almost no reasonable control over the outcome of the flip. However, when you invest in a business, you have more control over the success of that investment.

Professional investors don’t throw money onto the table and hope to get an investment back. It involves a lot of research, analysis and time commitment in order to make a profit with investments. If you think of it as gambling, then not only are you wasting your money, but you’re potentially putting your career at risk. In short, a skilled investor will always earn money while investors that throw caution to the wind will always end up with mixed results. Whatever type of investment you put your money on, make sure you’re being sensible with your cash so that you don’t lose money for no reason.

Why do people invest?

Investing is a way to make money, but it’s also a way to support businesses and ideas that you firmly believe in. If your friend or family member starts a company and you want to support them, then you can do so through professional outlets by investing money. Investing is also a great way to protect your wealth. Due to inflation and low interest rates with savings, it’s not uncommon to see people investing their funds into a business, property or even stocks instead of the bank.

Investments are a simple way to prepare for retirement, but they’re also a great way to pass assets down to your offspring when you retire. For most people, investing isn’t so much a way to make money, but to secure your money as well. It goes without saying that learning how to invest money and what to invest in is a fantastic skill to have, so without further ado, here are some common investments that people get involved with.

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Property/Real Estate

One of the most common investments people make is in land or property. It’s simple; you look at land for sale or property for sale, then you purchase it, renovate or refurbish it, then sell it for more money. You could also hold onto the property or land in hopes that it will increase in price in the future due to demand in the area, and that’s how you make money from property and real estate. There are many factors that will determine the success rate of your property investments. For example, you need to understand the market you’re involved with and you have to look at property trends. Perhaps there are lots of students looking for cheap and affordable student accommodation, or perhaps you have plenty of money to invest in high-class luxury properties. Maybe you’d like to kickstart a property development yourself, or perhaps you’d prefer something with less hassle such as investing in an existing property development. There are many options here, and it all depends on your personal preferences and how much money you have to start with.

Stocks and Shares

Stocks and shares are essentially a stake in a company and its profits. You basically own a part of the company and as a result, you get a cut of the profits they make. This can range from small startups to large companies. Depending on how popular the stocks and shares are, you might find yourself trading these a lot more often than you’d imagine. Stocks and shares can drastically fall or shoot up depending on market conditions, making this a volatile market that could make or break your investment. A lot of research is required to be successful in trading stocks, but it’s a great starting point since you can typically begin with a small amount of money. Unlike buying entire plots of land or houses, you don’t need as much cash to begin and you can always start at the cheaper end of the spectrum, although it does become more volatile the lesser known the companies are.

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Businesses

Starting up your own business is incredibly difficult if you don’t know how to get started. Essentially, you’ll be investing money into a product or idea in hopes that it will flourish into a budding business. This has a huge potential to give you ridiculous profits, but it’s also very likely to fail if you aren’t prepared with the right information and knowledge. You could start something simple such as an online store, you could invest money into creating your own outsourcing company, or you could even kickstart a project with the help of crowdfunding. Whatever you decide, it’s important to remember that you have full control over the success and failure of your company. You need to know how to hire employees, nurture your idea and also expand it in the future. Growing a business is perhaps even trickier than starting a business, and failed growth can sometimes be devastating to cope with. Fortunately, if you manage to secure a foot in the door with your chosen industry, it can be quite easy to make money with a business and it’s usually self-sufficient once you reach a certain point thanks to the employees that help you run it. Eventually, you’ll be able to hire a CEO, branch out, and become just a founder and major shareholder instead of the head of the company itself.

Final Words

As you can see, investing is a fundamental skill for anyone that wants to generate wealth or secure it. It takes some practice, a lot of learning and a pinch of luck. However, as long as you don’t see it as an alternative to gambling, the potential for income generation is huge and investing should not be underestimated as a full-blown alternative to working. If you’re tired of working your standard job and want something with a little more excitement and control, then consider studying how to invest.

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Category: Investment

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