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Start Investing — A Beginner’s Guide
The world of investments can be quite intricate if we don’t approach it with the necessary knowledge and fundamental concepts. It’s important to remember that nobody is born with all the knowledge in this field. At first glance, the stock market and financial market might seem puzzling, especially if we lack proper education and familiarity. Limited resources can also make it difficult to fully comprehend how these markets work.
Some people have a broad understanding of markets thanks to their educational background. However, for those of us who don’t, we have put together this small guide of concepts that will help you start exploring the financial market on your own. How to invest? Where should we begin? These are questions we’ll address in this guide.
What’s the stock market or stock exchange?
The stock market is a marketplace in which you can buy or sell different investment instruments such as government and corporate bonds, stocks and other securities. It operates on a free-market basis, meaning that prices are determined by supply and demand. Stockbrokers or brokers are the ones who determine prices and facilitate the trading of these investment instruments.
It’s important to consider the following stakeholders:
- Suppliers. These are companies that sell their stocks or securities in exchange for capital. By doing so, they can reinvest the funds into new ventures, further develop their operations, recoup their financial capital, or achieve greater profits, resulting in appreciation of their investments.
- Demanders. These are the individuals or entities who purchase the stocks or securities, ultimately becoming shareholders and partners in the company. As shareholders, they are entitled to a proportional percentage of the company’s profits based on their initial investment.
- Fluctuation. This refers to the natural variation in prices driven by the forces of supply and demand. Depending on market conditions, prices can either rise or fall. Your potential gains or losses as an investor are directly influenced by these fluctuations.
Saving vs. Investing
This is one of the fundamental principles when it comes to financial education. Let’s start by clarifying what each concept means:
- Savings. It refers to the act of not spending money and setting it aside for future use.
- Investment. It involves the acquisition of goods or assets, with the aim of generating a future profit.
As a key takeaway, it’s important to realize that without saving beforehand, it’s impossible to start investing. This is crucial because when you decide to invest, the primary focus should be on protecting your day-to-day finances. Investing inherently carries risks, so it’s not wise to put all your money into a single investment without having a small financial backup.
So, the best approach is to invest in small amounts and carefully analyze the strategy. It’s also important to save some of the money, but it’s not recommended to save everything, since money usually loses value over time. Always keep in mind that experts are the ones who can provide you with the best guidance and advice.
Where can I invest?
In the stock market, there are plenty of options available for those of us who are not experts. Some of the key assets to consider for investment are:
- Stock market. You have various options to consider, such as investment funds and stocks.
- Fixed income. This includes Treasury bills or government bonds.
- Private companies. You can invest in different startups or even sports clubs or teams like e-sports.
- Real estate. Opportunities like rental properties, parking spaces, commercial premises, or warehouses.
- Art. Investing in paintings, photography, music, or sculptures.
- Land. Consider purchasing land that can be used for various activities, like agriculture.
- Precious metals. Investing in metals like gold or silver.
- Collectibles. Numismatics or philately, where you collect stamps or coins.
- Bank assets. Explore bank deposits that offer a certain level of return.
- Cryptocurrencies. The world of Bitcoin or Ethereum can be complex, but it presents potential for significant profits.
As you can see, it’s possible to invest and achieve financial returns through assets that are not directly tied to the stock market.
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Simple and useful advice
Now that we have a grasp of the investment basics, it’s important to consider a few tips and factors that will be highly useful as we venture into the world of finance:
- Make sure to educate yourself in finance. Remember, we’re dealing with real money here, so a wrong decision can have serious consequences. It’s crucial to have a solid understanding of investments and consider seeking advice from experts when needed.
- Evaluate your own financial situation. Take into account your income, savings, and determine how much money you feel comfortable investing. Keep in mind that it’s real money, so you should only invest an amount that won’t significantly affect your personal financial stability.
- Consider the specific characteristics of your investment, such as the time horizon (long-term, medium-term, or short-term) and the strategy involved. Patience is often required as it takes time to see the returns. Defining a clear investment strategy and setting achievable goals will increase your chances of success.
- Don’t limit yourself to just the stock market. Explore other investment options that might be more suitable and appealing based on your current circumstances and financial knowledge. There are plenty of alternatives out there, so be open to exploring different avenues.
Keep in mind that every investment comes with risks, and there are no guarantees in the world of investments. It’s crucial to have a solid foundation of knowledge and a clear understanding of investment and savings principles at all times. Seeking advice from experts is always the best way to ensure you’re on the right track and making informed decisions.
