When beginning the journey into investments, the first step is to learn the basics of the venture. This, of course, involves financial planning, understanding risk appetite, and grasping the kind of commitment necessary. After that, it may appear overwhelming to find out where to make the first investment.
With so many different markets and asset types, it may be difficult to decide where to start. For instance, many have tried investing in crypto because of the hype surrounding this particular type of investment. These people jump the gun and get a digital wallet—like an XMR wallet that can store Monero coins—only to realize that the volatility of the cryptocurrency market makes it a challenging investment for beginners to get into. However, it’s still best to keep an open mind when building a diverse portfolio. Luckily, some assets are great for beginners to look into early on.
If you’re just starting out as an investor, here are a few different types of investments for you to learn about.
1. Savings Accounts
As one of the simplest types of investments, a savings account is a great investment opportunity open even to non-investors. It is easy to set up, and it arguably has the lowest risk of any financial asset. This is because of its transparency since investors are given clear numbers on its interest rates—the steady returns on their investments.
Getting into this type of investment is as easy as opening an account and depositing cash. However, it’s important to note that the return on investment for this particular asset isn’t as high as others. To get the best results, investors should research further into getting the best interest rates offered by different banks. In particular, they should find the highest-yield returns. Fortunately, these are offered most often by online banks, which are easy to find.
2. Mutual Funds
While savings accounts offer steady financial growth, the returns may not satisfy investors prepared for more. This might tempt some investors to skip straight to a more aggressive market. However, certain types of investments can still earn dividends at a steadier rate while still being relatively secure in terms of risk management. This is why investors have the option to enter a mutual fund.
Mutual investment funds allow multiple investors to group their funds to be allocated into various assets. These funds are handled by portfolio managers who do most of the work in terms of research and decision-making. They primarily act in the best interest of the investors and conduct research into the fund’s portfolio and how it can best be managed.
Despite these conveniences, this type of investment does incur service fees for managing this portfolio and the fund. Likewise, entry into a mutual fund often demands higher minimum deposits to join. In exchange, the investment is treated as a security since it is immediately diversified by virtue of the portfolio.
3. Exchange-Traded Funds
Exchange-traded funds (ETFs) work very much like mutual funds except with a bit more nuance to where the investment goes. Investors can place their money into the fund, which is used to purchase additional assets. ETFs have a generally lower barrier to entry because they act more like shares on the stock market.
These funds require a bit more thought before fully committing to them. First of all, the trading done with this fund is more aggressive and more frequent than with mutual funds. Second, each fund focuses on particular industries and sectors rather than simply having a generally diverse portfolio. Finally, there are a variety of ETFs classes catered to stocks, bonds, commodities, and currencies, among several others.
Beginner investors should study their options for ETFs since these are not as safe as mutual funds. They rely on the performance of their assets without the same cushions that a more diverse portfolio has. Investors must be as familiar as possible with the sector of their chosen ETF.
4. Individual Stocks On A Stock Exchange
Nearly everyone knows about the stock market, but that does not make it as friendly as the previous three investment types. In a sense, this type of asset can be seen as an introduction to intermediate-level investing. Investors can typically function independently, meaning there is no need for portfolio managers or investment pools. Instead, investors can decide exactly where their money goes.
While this may sound quite intimidating at first, it comes with greater freedom and transparency about how your funds are used. Obviously, it is because you make every decision. This requires tremendous research since investors have to know the companies in which they want to invest in and their respective industries.
What most investors tend to do is to choose companies that they’re already familiar with. If they already trust their product or service, they can more easily stand behind their investment’s stability and potential growth. However, this does not make it a secure investment compared to a savings account. On the other hand, stocks can be easier to track because of this familiarity.
There are still many other types of investment types beyond this list. For example, there are bigger markets such as real estate and commodities and more complex assets such as bonds and hedge funds. These are not for beginners, but they are potential options down the road. However things go, it cannot be understated that research is crucial to investment activities.
It is just as important to know when to go all-in with a particular investment as it is to get out. Furthermore, new investors will have to learn more about the liquidity in their assets as they venture further into more lucrative markets and investment types. Hopefully, this has been helpful to those who have just started to build their portfolio.