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Investing for beginners – Understanding the basics

by Jonathan Adams

You can expect more from your money by putting some of your cash into investments. There are several options you can weigh before investing which will keep up with rising prices. In case you are new to investments, there are number of investing for beginners opportunities to explore which come with their own set of advantages and disadvantages and you can choose the one which is best for your requirements. You can begin with some of the investing for beginners options and then explore more possibilities and expand your investment base as your portfolio becomes stronger. The various assets owned by an investor are called a portfolio.

Let’s understand investments. Under investments, either you buy or put money for getting a profitable return. After you begin with investing for beginners, you can diversify your portfolio to include more investment categories.
Investments can be broadly categorised as following, which are known as asset classes. Some of the asset classes such as cash investments are an opportunity for investing for beginners, whereas others such as shares and property may involve elements of risk and may require large investments, which is not often possible for beginners.

  1. Shares – Under this investment category, you buy stake in a company
  2. Cash – The cash category forms an important part of investing for beginners in which you put money in a bank. It is a good option for beginners as it is not prone to market conditions and offers a safer option.
  3. Property and real estate – You can invest your savings in a residential or commercial physical building. You can also invest in plots of land.
  4. Fixed income securities or bonds – This category includes loaning your money to government or a company.

As part of investing for beginners, there are other options as well and you can invest in investment categories which include the following:

  1. Foreign currency
  2. Collectibles such as art and antiquities
  3. Gold
  4. Contract for difference, under which you bet on the gaining and losing values of shares

As a rule, you can minimize the risk for investing for beginners associated with an underperforming portfolio by distributing your cash across asset classes. Diversification of cash allotment for investment enhances profit-making factors and forms an important part of investing for beginners. So, you should not put all the eggs in one basket.

Once you invest your cash, you get ‘Returns’ or the profit from your investment. You get the returns in a number of ways depending on the choice of your investment category and include:

  1. Dividends – from shares
  2. Rent – from property
  3. Interest – from cash deposits and securities
  4. Capital gains or losses – the price difference between the buying price and the selling price

An important part of investments is the fee charged by the service providers. These charges can be more than just insignificant, so it is important for investing for beginners to be very sure about them before investing money.
Before investing, you should realise that however sure you are, there is no such thing as ‘no risk’ investment. Risk is inherent part of every investment. Therefore, investing for beginners becomes an activity which comes with some risk factors. There is some risk associated with every investment, but the level of risk varies according to the category of investment.

  1. Money you put in secure deposits lose ‘buying power’ over time since the interest rate may not be according to the rising prices or inflation.
  2. On the other hand, the index-related investments that follow the inflation rate, do not always follow market interest rates which means your earning could be less in case of a fall in inflation.
  3. Stock market investments may be unaffected by inflation and interest rates but the prices could be less when you want to sell, resulting in poor returns.

In case of investing for beginners, broadening of the investment base keeps your investments safe and secure and provides you choices to fall back on in case one investment does not work the way you want.

You also need to consider the time for beginning your investment. You should invest when you have cash in your savings account to sustain you for at least six months and you want more money over the long term. An investment for which you can afford risks in terms of finances and which meets your future goals, is right for you.

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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