One of the most common pieces of financial advice you are going to get, whether you are in your twenties, thirties, fifties, well, pretty much all the time, is that if you want to be financially successful, you need to invest your money. Saving is good, they’ll tell you, but investing is better.
Why is investing superior to simple saving? Because while, yes, savings accounts do rack up some pretty nice interest (especially if you don’t ever dip into that account) over the years, investing is the only real way to use the money you have to earn more money. Of course, first you have to know how and where to invest. Here are some of the different types of investments you can make.
It’s true: agriculture commodities can be wildly unpredictable. This is because agriculture products like wheat, lumber, livestock and–according to a 24Option Blog link–corn, are dependent upon supply-vs-demand and that depends on elements like weather and crop yields. Even so, these types of commodities are necessary all over the world. In fact, corn is near the center of the world’s economy. This is what makes commodities one of the safer initial investments you can make. You probably don’t have to worry about commodities becoming obsolete within your lifetime, unlike traditional stocks which are based on consumer whims (who remembers Borders?).
A mutual fund is, basically a company that multiple people pay into. That “company” is managed by a broker who works with the group to decide where the money in that company should be invested. The profits made by those investments are shared between the members of the group and, if you want to sell your shares of the fund, you can sell them directly to the fund’s family (aka the group of investors also buying in to the fund). Mutual funds are good because you can build a diversified portfolio with a single investment, instead of having to make multiple investments on your own (which can be difficult). The cons of mutual funds are that they can have some pretty hefty fees attached to them and if the fund earns money, the shareholders are responsible for paying the capital gains taxes on the profit.
Stocks are, at heart, pieces of a company that you can buy and trade. According to Investopedia, “Stocks are a part, if not the cornerstone, of nearly any investment portfolio” Here’s the gist of how they work: the price of a stock is based upon the current value of a company and how many stocks the company issues. You buy at price X. Over time if the value of the company increases and the number of stocks stays the same the stocks you bought at price X are now worth price Y. You can keep the stocks and hope they keep increasing in value or you can sell them at the new current price and pocket the profits.
Stocks are great because buying and selling them is relatively simple and something you can get into on your own or with the help of a broker. Where stocks falter, though, is how unreliable they are. They can make a ton of money one day and then lose two tons the next. Deciding what to do with your stock portfolio is kind of like trying to decide whether or not to let your hand ride in Blackjack. It’s a gamble.
These are just a few of the basic types of investing that you can do. You can also invest directly in companies for a percentage of their profits (if they make any). You can decide to invest in real estate. You can invest in precious metals. Most investment portfolios, however, will involve mutual funds, stocks, and commodities. If you’re unsure of where to start, talk to a financial planner; they can help you figure out both how much you can afford to invest as well as what those investments should be.