What is Investing?
Investing is the action of giving money or capital to an endeavor with the hope of obtaining additional income or some profit. Essentially it is trading in the money you have right now with the hopes of getting more back in the future as a result.
People will invest in all kinds of things, ranging from stocks in publicly traded companies, bonds, real estate, mutual funds, ETFs, and more. The more money that someone invests, the more money they are likely to receive as a return if there is a profit made by the entity that they invested into.
Figuring out the Assets You Want to Own
It is not particularly wise for you to just throw money out into the pitch black and hope for the best. When you want to start investing, it is important for you to figure out what kinds of assets you would like to own and being aware of what assets would potentially yield some worthwhile returns. You need to account for time, factor in inflation, as well as adjust for risk. The more you know about all of these things and how they work, the better chance you will have of picking a winner.
Investing in Stocks
Stocks are one of the most commonly pursued forms of investment. A share of stock represents a piece of a company that you own. The more shares that you own, the more money you could earn back if the company does well. At the same time however, there is much more money that you could lose should the business tank and completely go under. Everything varies depending on the value of the stock, which changes based on how well the company is doing at any given moment. That said, there are numerous companies in which investments could be made.
Privately Held Businesses
Investing in a privately held business could be an extreme risk at the start. You have no idea how things might turn out and it could all go rather poorly pretty quickly. However, if the idea is good enough and the company is run properly, then there is a chance that the reward for investing could be incredibly high. Usually when someone invests in a privately held business, it is a business that they personally own and run. However, this is not necessarily always the case, as other people may still invest on a smaller scale.
Publicly Traded Businesses
The more commonly known investment in business involves publicly traded businesses. These are the kinds of businesses that stock may be bought in, which will then give you partial ownership of it. When you buy enough stocks and end up owning more than 50% of the company’s stock, you are given primary ownership of it. This whole process is known as Initial
Investing in Fixed-Income Securities (aka Bonds)
When you are giving money to an issuer of a fixed income security, you are essentially giving them money in exchange for some interest income. You can do this by buying certificates of deposit (CDs) and money markets, or by investing in tax-free municipal bonds, corporate bonds, or U.S. savings bonds.
These are all bought through a brokerage account. You can choose between a full-service or discount model. The minimum investment varies, but it usually ranges from $500 to $1,000.
Investing in Real Estate
Investing in real estate is one of the oldest kinds of investments there is. You have a lot of different options available to you, but the more common method is developing something and then selling it for a profit. Alternatively, the other common method is buying a property and then allowing other people to use it in exchange for regular rent payments. When applied to the right investment, this could end up yielding some high returns for the person doing the investing.
Deciding How to Own These Assets
Now that you have assets figured out, it is time for you to decide how you would like to own them. Outright ownership is where you buy shares of an individual company directly or through pooled ownership. Pooled ownership is where you mix your money in with that of other people and buy multiple companies through a shared entity or structure.
Deciding Where to Hold These Assets
Finally, you need to decide where you would like to hold these assets. The way you hold an asset has a major impact on the ways in which they are taxed. You need to take some serious time and consideration with this. Your choices with this will include taxable brokerage accounts, traditional IRAs, Roth IRAs, SEP-IRA, simple IRAs, as well as family limited partnerships.