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Beginners Guide To Investing

If you are just starting your life as an active investor, don't go further before reading this guide. It is your introduction to investing in simple words.

Why Invest


Most people work for money during their entire active life. They earn salary or fees, spend it on things, often get loans to buy things and then work more to earn more money. Most people feel fine doing that and rare question the concept at all. Even more, most of us are taught to be workers and that being a good well paid worker is the best you could do. That's schools and colleges teach you how to be an expert in some domain and do as better job as you can.

Child almost taking her first steps.
You can start with baby steps


The main problem with this concept is that it puts you in the "rat race" for life. You eventually grow in your career and get higher pay, but then start buying more expensive things and have to work even more. So, although this way of doing the things may eventually make you feel wealthy, it is eating your freedom as you have always to work harder and harder.

Investing on the other hand lets your money work for you. By investing regular amounts during long time you can eventually reach the position when your investments bring you enough passive income (i.e. income coming to you without you working for it), so you can work less or stop working at all.

Most long term investors are looking for early retirement which will allow them do the things they love and work only when they want to work.

Investing is a smart way to make your money work for you instead of you working for money. This is what the rich people in the world do - it's not the large amount of money they own that makes them so happy - it's the freedom that the money gives.

Most rich people have a lot of passive income - i.e. their money is working for them. There are only some exceptions - like some sportsmen, actors etc.

Risk In Investing


Everything would simply be great if investing was risk free. Unfortunately it is not. Often investing will not bring the expected returns and even will bring negative returns which means you can lose part of all of the money invested.

The risk is what stops many people from investing and keeps them in the rat race. You should develop strategies to limit the risk and always invest only what you can afford to lose.

On the other hand, don't forget that money can always be made, but if you are so much afraid to lose that you never invest, you'll miss all the opportunities.

How To Raise Money For Investing


The more you can invest, the more profits you can receive. But if you don't receive legacy or don't earn big bucks every month, you'll have to be creative in order to raise money for investing. Here are several ways to do it:

  • Saving. Saving is of course the most straightforward method to raise money. If you buy less things and live simpler you should be able to set aside some funds for investing. Many people hate the idea to spend less, because this means to buy less stuff they love. But chances are if you honestly think how much useless stuff you buy, you would end up with a nice amount of money to save.

  • Working more. An alternative to saving is to get a second job, freelance or just work extra hours and set apart the money earned. This is excellent short term solution because you don't need to ruin your lifestyle. But if you get addicted to do it all the time, you will start question the point of losing your sleep. Many investors make the mistake to work more and then spend the extra money on things. Avoid this, because it's keeping you in the rat race just as when you did not work more, but now you have less free time. It's better to check out some time management resources and learn to control your time.

  • Loans. Loans from friends, banks, credit instituitions or partners can leverage your investment results. The main rule when taking loan for investing purpose is that the interest on the loan should be lower than the ROI on the investment. The interest on loan is usually a fixed value, but the ROI on investment is not. So there is an element of risk in such activity

  • Other people's money. This concept is similar to loans, but it involves taking other people's money on non-fixed interest. I.e. you share with them the same or part of the ROI (even if negative) that you make from the investment. This is giving you access to opportunities that you could not reach alone. This is how most mutual funds and hedge funds work.



There are even more methods to raise money, but as a beginner investor the above four are all you need to know.

Types Of Investments


Investing can be passive and active. In most cases you will want to aquire passive investment so you don't have to do anything in order to earn money. For example putting money in a mutual fund is entirely passive investment. The active investments require your active participation. For example trading forex is entirely active investment.

Depending on the risk level you will usually see people talk about conservative, balanced and aggressive investments. The conservative deals will barely reach 5% - 10% per year and usually will not get you far away. The balanced investing strategies are the ones who have made the most millionaires in the world - achieving 10% - 20% per year. With aggresive investing - achieving 20% and more, sometimes even 100% per year - you can be reach even if you put aside few bucks every month. But very few are lucky enough to "make it" with aggressive investing because of the big risks involved.

The blogs like this often talk about traditional and alternative investment. There is nothing more traditional than putting your money in your bank. Putting it in forex managed account, in a startup company or in forestry fund is definitely an alternative activity.

While reading this site you will learn a lot about all sub-categories and sub-types of investment such like deposits, managed accounts, forex, stocks, options, domains, commodities, metals, business, startups, hyips, gambling, signals, mutual funds, hedge funds, exchange traded funds, securities, insurancies, CDs, bank deals, private loans, etc, etc.

Compounding


Compounding is so cool that once you understand it you will never stop thinking about it. Imagine putting $1 in a box today. If after 50 years you open the box, there will be still $1. However if you put one buck in a bank account for 50 years, you will have $11.50 (at 5% yearly ROI). If you put $1 in mutual funds making 18% per year, after 50 years you will have $3.927 and if by any chance you put it in a managed trading account making 50% per year, your buck will worth 638 millions after 50 years. That's all because of the compounding.

Why is that? Because the compounding effect adds your profits into the investment. So at 50% ROI after 1 year your dollar will worth $1.50. But then 50% of that are $0.75, so at the second year it's not $2, but $2.25. The $2.25 will make $1.25 and you'll have $3.50 after 3 years etc...

Try our compounding calculator, play with the numbers and see how cool and exciting compounding can be.

Investment Scams


The world of investing would be close to a dream if there were no risks. Unfortunately the better ROI an investment brings, the higher the risks are. And that's not enough - the world is full with thieves and crooks who want to steal your money. Many of them will offer you promising risk-free investment opportunities in order to get your money. Then they will run away and you'll never see your bucks again. Beware of the following types of investment scams:


  • Ponzi Schemes. Most HYIPs and other pooled high yield investments fall into this category. You may be paid for a while or even get out in profit, but you may also lose everything.

  • Bank Debentures. If you hang a little in the investment related communities and forums there is no chance that you will miss them. The "bank debentures" also known as "Prime Bank Scam" are offered by shady individuals who promise you to achieve incredible returns through very private bank deals. Just common sense is enough to spot this fraud, but if you want more information, check here

  • Fake managed accounts. Once you discover the oportunities which managed trading gives you, you will be keen to learn about any promising service. Unfortunately there are different kinds of managed accounts fraud. Expect to read here how to spot the managed trading scams

  • Penny stock pump and dump. This highly illegal scheme is targeted among newbie stock traders and often send by mail in form of recommendation to buy some stock.



There are even more types and sub-types of investment scams and fraud. Of course on this site you'll learn how to protect yourself from them, but always use your common sense. If some investment opportunity looks too good to be true, it probably isn't true at all.

Published at Dec, 31 '69 , Read 47835 times.



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User comments:

karen at Feb, 16 '16 23:36
Please let me know which investments are best for beginners and how do I get started.
Reply to this comment
Kimberlie Crawford at Dec, 08 '16 11:48
Wanting to know the best way/place to begin in small investing
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