Investing 101: Learn the basics of Investing and Investments

Investing 101: Introduction

Have you wondered how people get wealthy through investing? Do you ever desire to retire early? Would you like to keep your money growing?

Well if your answer is “yes” to the above questions, then you are ready to learn about the basics, investing 101. For many finance is extremely intimidating, I want to help you get past that intimating veneer to show you that anyone with knowledge, patience, and fortitude can be a long-term successful investor.

I want to emphasize that investing isn’t a get-rich-quick scheme. People looking to get rich quick, majority of the time never get anywhere, keep spinning their wheels from one investment to the next deal, and/or waste their time. Don’t be one of those people. Remember in investing the tortoise wins at the end.

Successful investors are disciplined, in control of their finances, focused, do their homework on each investment before investing, and work hard. They make success look easy but behind the triumphs have a strong work ethic.

Irrespective of personality type, interests, or lifestyle, the following investing 101 tips will help build a solid foundation upon which to build a long-term investment future.

What Is Investing?
It means that you are putting your money to work for you. Basically, it is how you approach the utility of money. Essentially, investing is making money, as to maximize earning potential.

There are various ways to make an investment, including placing money into stocks, mutual funds, ETFs, bonds, real estate (includes other things), or business entrepreneurship. How you choose to invest is called is investment vehicle. The important point is that you put the money to work for you to earn additional profit.

Now that you have a general idea of what investing is and why you should do it, it’s time to learn about how investing lets you take advantage of one of the miracles of mathematics: compound interest.

Types of Investments
There are many ways to invest your money. You have to decide which investment vehicles are suited for your needs. Here is a list of some common investments:

Stocks -the purchase of common stocks gives you part ownership in the corporation. Also you become a shareholder with voting rights, able to vote at shareholders’ meetings. You may share in the profits of the corporation in the form of dividends. Possibility of earning high returns and suffering high losses

Bonds – also classified as fixed-income securities, refers to any securities that are founded on debt. When you purchase a bond, you are become a creditor to the issuer, a lender. The bond issuer gives you interest on the lent money and you eventually get the principal. Non-junk bonds are considered relatively safe, especially government bonds which are considered risk-free.

Mutual Funds – most mutual funds are a composite of stocks and bonds. The purchase of a mutual fund involves the pooling your money with other investors, that enables the fund to pay a professional manager to manage the mutual funds.

The main advantage of a mutual fund is monies invested are proactively managed by an experienced professional who makes sound investment decisions.

Alternative Investments - Options, FOREX, Futures, Gold, Real Estate, Etc.
These are more complex forms of investments and require more sophisticated strategies.

Portfolios and Diversification
As you start investing, you start developing a portfolio. A portfolio is a combination of various investment assets for the purpose of achieving an investor’s goal. For this section, I will discuss the most common asset classes: equities, fixed income securities (bonds), and cash equivalents.

Your portfolio can be represented as a pie chart, whose parts represent different asset classes. The asset mix of the portfolio determines the risk and expected return of your portfolio.

Basic Portfolios
The three basic types of portfolio mix are conservative, moderate, and aggressive. Conservative portfolios emphasize safety above risk/return. Conservative strategies involve cash/equivalents, and/or high quality bonds.

Meanwhile a moderate strategy is one of intermediate risk and a return portfolio mix of equities, various bond types, and possibly some cash/equivalents. A moderate portfolio is suitable for someone willing to accept moderate level of risk and return, and looking for greater diversification.
In general, aggressive strategies aim for the highest potential return and have tolerance for high risk. The aggressive portfolio is weighted primarily in equities or similar higher risk investments that seek aggressive growth.

Diversification is Good
Diversify. Diversify. Diversify. This is the mantra of a successful investor. Memorize it. Your long-term investment success centers on diversification. Because different securities perform differently at various points in time, hence a good asset mix ensures that your entire portfolio isn’t impacted from the decline of any one security. For example, if stocks go down, you still may have the strength of bonds in your portfolio.

Conclusion
There many investment choices out there. I strongly encourage you to explore them and see for yourself what works for you. However, for the average investor the most profitable avenue is one of saving regularly, maintaining low investment expenses, and having a long-term investment strategy. Stays focused and disciplined, and stay on the path of learning.