Before you invest a dime of your money, you will need to understand that each investment has a risk/reward value tied to it. Below is a summary of investment types from conservative to aggressive.
- Money market accounts, bank savings accounts, and CD's. These investments are very stable investments that protect your principal.
- Bonds carry a little more risk/reward value. The best time to invest in bonds is when interest rates have peaked and are on their way DOWN. Sounds strange, but bonds increase in value as interest rates decline. Bonds have varying degrees of risk depending on who issued the bond and their ability to make good on the debt.
- Real Estate can be a great investment, but contrary to what many people think, this investment can be very risky. Real estate is subject to market conditions like any other investment. Unlike many investments, liquidity (ability to convert to cash quickly) is a problem.
- Stocks (or equities) can be conservative to very risky. There are many strategies out there for investing in stocks. If you don't have a lot of money to invest , your best option is to purchase shares in a mutual fund that invests in stocks.
- Options are becoming a more popular investment. This should not be confused with "stock options". Stock options are a form of compensation that an employer grants. With options you have a multitude of ways to make or lose money. The beauty of an option is that you have limited risk (the price of an option). The negative side to this type of investment is that it expires at some date in the near future. If you would like to learn more, visit http://www.cboe.com/
- Currency trading is something most people are unfamiliar with. You can pile up gains and losses very quickly because it is a highly leveraged investment. For the beginner, the "mini" account will allow you to trade currency for as little as a $50 investment. The leverage on the investment can be up to 200 to 1. For $50 you can control a $10,000 "mini" contract. If the $10,000 mini contract were to gain 1% in value, you would triple your $50 investment. Of course if the contract lost 0.5%, you would lose your $50. Learn more about currency trading at http://www.fxcmtr.com/index.html
- Commodities trading is at the bottom of the list. Not many people can afford to invest in things like oil and orange juice. These investments can produce substantial gains and losses. Like currency trading, you can control a very large investment for a small outlay of cash. This is not an investment to put your nest egg in. Someday when you have built a substantial net worth, you may want to give it a try. This type of investment is not for beginners or those with a weak heart.
If you don't have a lot of time to devote to researching good individual investment opportunities, you should invest in a mutual fund or two. The advantage to investing in mutual funds is that you have a professional team of investors working for you.
A mutual fund pools money from many investors and purchases a basket of investments based on the intent of the mutual fund. The investments can be very aggressive, very conservative, or somewhere in between. They can invest in bonds, stocks, real estate, etc. , or a particular sector, like health care. The overall risk of a mutual fund is dependent on what they invest in and how well it is managed. Morningstar is a great place to learn more about mutual funds and their performance. Visit http://www.morningstar.com/Cover/Funds.html to view more on the subject.
Depending on your goals and your tolerance for risk, there is an investment that can fit your personality and needs. Before investing, make sure you understand all the risks. All investments have the potential to lose money. Keep an eye on fees, penalties, and commissions as they can erode away at your profits or add to your losses. Practice good financial habits and you will be on your way to saving some big money.
To learn more about investments, try this site out. http://www.investopedia.com/
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