Investment Pt.1

By: John Oh

Source: Investment U

After you make money, the common first instinct is to either spend it or save it (depending on your preference). The obvious reason to spend money is to have fun or enjoy yourself. If you spend your money you can get new shoes, clothes, bags, and if you have enough, anything you want. Saving money is also satisfying. Knowing that your money is safely resting in a savings account or some other safe place is a relieving feeling. Also you know that when you really need money to spend, it is available to you. However, in both of these situations, your money is either decreasing (spending) or staying relatively the same (saving). The idea that most people don’t first think about is investing. While there are many other things to invest in, such as real estate or cryptocurrency, in the following article, we will be focusing on how to invest in the stock market.

Before you begin investing, it is important to determine how you are going to approach investing. The two general ways to invest is to either have a do-it-yourself type of approach or an approach where you receive a lot of assistance.

If you think that you are going to need a lot of help to decide what to invest in, or if you are simply not confident in investing, you can opt for a robo-advisor. Robo-advisors will use computer algorithms and complex software in order to create and control your investment portfolio. This tool also has a variety of possible choices that you can select from, from more conservatitive to more aggressive, that will change what the algorithm decides to invest in. Robo-advisors are also relatively cheap as they only take about 0.25%-0.5% of your account balance annually for its management fee. This fee also makes you feel safe as the robo-advisor makes more money as your investments do better, meaning it has no good reason to scam you. Also, even though it requires little to no human interaction, in many cases, a human advisor is available to talk to if there are any issues.

If you want to do it yourself, you have to choose the type of investment that will suit your level of aggressiveness when investing. Simply, being more aggressive means that there is a higher possibility for a big payout but also a higher possibility of a big loss. Conversely, being conservative means taking low-risk investments to minimize losses and play it safe. Neither one of these is “right,” so it is simply a matter of preference.

The three most common investments are stocks, bonds, and mutual funds. Stocks are shares of ownership of an individual company that you believe will increase in value. Stocks can be both conservative or aggressive depending on the company. Today, investing in Apple or Amazon is not very risky as they are large, well-established companies that will not be going up or down too significantly anytime soon. On the other hand, investing money into smaller companies that have a good chance of both becoming very successful and failing, is risky because you could lose it all.

Bonds are typically safer investments than stocks. A bond is where a company or the government is allowed to borrow your money and regularly pay you back until they return the entire principal value to you on a set date.

Mutual funds are great because you can have a mix between safe and risky investments. Investing in a mutual fund allows you to buy many investments at once, and these investments will go along with the goal of the mutual fund as well. These investments are controlled and managed by professionals who do what is best for you and your money. This somewhat means that you are not in control again, but it is slightly different because you chose the mutual fund to invest in, at least.

After understanding these concepts, it is now a matter of identifying what you want to do for yourself and how you want to approach investing. Always keep in mind that there is no one right or wrong way, so do whatever you believe is best for yourself.