With the rise of the online world more and more people are realizing the benefits of investing some of their savings in stocks and are now more easily able to do so. If you’re thinking of getting into stock investment it’s understandable if you’re feeling a bit lost and unsure where to start, and what the benefits are. We’ve created the following guide to help you understand the benefits of investment, as well as some tips for investing as safely as possible. Keep reading to learn more.
The Opportunity To Grow Your Money
If you have a good amount of savings built up, you may be beginning to think about ways you can invest some of that money to gain even more. Investing although never guaranteed, does provide the opportunity for your money to grow and increase, with very little effort required on your part. Patience is key with investing, but if you’re willing to wait for the long term payoff, you can see worthwhile results.
Making Your Money Work For You
Part of the appeal of investing in stocks is that, unlike savings, the money you’re putting into stocks can actually make you more money. Rather than having to work harder, longer hours, or picking up extra work- stocks make your money work hard for you. Although you need to be involved with keeping an eye on the stock market and any fluctuation in the stocks in your portfolio, aside from that, stocks are relatively low maintenance. This is especially true if you choose long term investing, as this is usually a lot less volatile than short term investing.
You Don’t Have To Be An Expert To Invest
The beauty of investing in stocks is that you don’t have to be a pro. You may think stocks and investing seems incredibly complex and overwhelming- but stick at it long enough and you too can become an expert. You only need to understand the basics to begin your investment journey, making smaller, less risky investments, and building up to higher risk (but more profitable) stocks as you become more experienced and knowledgeable. There are also a wealth of resources and training available online, so there is plenty of opportunities to educate yourself in stocks and investing if you wish to do so.
The Power Of Compounding
Compounding works by investing money over long periods of time. Investing a smaller but steady amount of money over years or even decades could mean that eventually, you could see huge rewards for your patience. As you are constantly reinvesting any gains earned from the stock back into the stock, the money you are earning from it keeps growing.
A Retirement Pot Of Money
The long term pay-off and compounding of investments in stocks means that if you invest whilst you’re relatively young or even middle-aged, you could have a healthy stash of money to take out come your retirement. Investing in stocks is another way of putting money aside, except in this case it has the opportunity to increase – potentially by a large amount. Although you should still have savings and a private pension that you pay into as these are risk-free, reliable ways of ensuring you have money when you retire.
Inheritance For Your Children
As stocks can increase in value over time, if you invest over years or decades, you be able to leave a significant pot of money for your children to inherit. Investing some of your money into stocks instead of just savings could mean your children have more when you’re gone.
Investing Money In Stocks Versus Savings
When you place money in a savings account, it sets there stagnantly achieving nothing for you. Interest is so small that you won’t really see any difference. When you invest some of that money into stocks, there is the opportunity for their value to increase with time. If you long-term invest, your investment portfolio won’t be as high maintenance and can sit in the background of your life whilst you get on with other things. Ideally investing in stocks should not take up too much of your time, and can be a form of making your money work for you alongside another form of income. Although having money in stocks makes sense to make your money grow, you should still keep a safety net of savings in a secure savings account. Don’t see stock investments as a form of a saving account, there is always risk involved with stocks and you shouldn’t put all your eggs in one basket. For a stock investing guide visit Greenery Financial.
Keeping Up With Inflation
One of the most positive aspects of investing in stocks is that it gives you the opportunity to beat inflation and see the value of your money rise with it. Holding stocks over a long period of time, as inflation increases so too will the value of the stocks you have invested in, so you can see a high return for the money you put in.
How To Invest Your Money
There are a couple of different options when it comes to choosing how to buy stocks. You can either invest manually by yourself or use an online broker. The benefit of using an online broker is that you don’t have to do all the work yourself. Investing manually is time-consuming and requires a lot more of your attention. There are plenty of online resources that can give you step by step guidance through the process of how to buy stocks.
What Are Dividends?
Dividends are a share in a company that is paid out regularly by the company to the shareholders. If the company chooses not to reinvest the money they make back into the company, it can pay out dividends. Any excess profits made by the company can be shared out equally with the shareholders, depending on what type of shareholder they are. The amount of money being shared out in dividends will be decided by the company, as well as the date it goes out. There are two kinds of shareholders, common and preferred. Preferred shareholders receive their share of dividends first and may receive a larger amount. There are a number of different kinds of dividends that exist, these include:
- Special dividends- this is when a company makes an extra excess profit and chooses to pay out a dividend more than the usual regular dividends
- Cash dividends- a cash payout for shareholders upon a company making excess profit
- Stock dividends- an alternative to a cash payout of dividend shares, the company offers extra shares in the company
- Asset dividend- if the company chooses not to pay out dividends in cash to their shareholders, they can distribute the dividends in real estate or other physical assets
What Is Capital Appreciation?
Capital appreciation can also be known as capital gain. It refers to the increase in the value of an investment due to a rise in the market price since the investment was first made. If you invest in a certain stock and hold onto it over a long period of time, and that stock’s value increases in value, you could make some good money from it.
What Are Mutual Funds?
Mutual funds are professionally managed by their own company. It pools money invested by numerous individuals and puts them into stocks and dividends. The benefit of using a mutual fund is that it takes a lot of the hassle of investing off your shoulders. However, if you’re thinking of using a mutual fund it’s important to note that you don’t directly own the investments yourself. The investments are technically owned by the mutual fund’s company. There are a few different kinds of mutual funds, and they themselves have their own sub-sections of funds too. However, these are the main kinds of mutual funds:
- Equity funds- the most common type of mutual fund, investing mostly in stocks and focuses on the size of the companies being invested in
- Fixed income funds- focuses on investments that can achieve a set rate of return- perhaps lower-value bonds that can be sold on for a profit
- Index funds- index funds are perfect for cautious investors or those new to investing as they have a lower risk than other types of investments. They follow the patterns in the financial market index
- Income funds- held over long periods of time to build up interest as well as providing an income on a regular basis
- Global funds- global funds means investing outside of your home country. It’s important to be careful with global investments as they require far more research and could pose more risk. It’s easier to understand the financial market in your own country but there could be economic factors in other countries that you may not be aware of.
Whatever your reasons for investing, we hope this guide has proved useful for helping you to understand some of the benefits involved with investing in stocks, and which form of investing could work best for you.