More and more people are aware that having money stuck in a bank account is of little use and look for alternatives to take advantage of your savings. However, uncertainty and little knowledge increase the fear of losing what has been saved. That is why we are going to dedicate this article to explain how to invest money effectively.
Due to the constant change in value that all currencies suffer, The money we have saved also changes in value and in the worst case scenario, it loses it. How can we avoid that? The best option is to put the money to work, that is to say: invest it, either by buying property or shares on the stock market. If you want to know how to invest money and the options you have to do it, I recommend that you keep reading.
Financial health
Let's start by briefly explaining what financial health is before giving instructions on how to invest money. This term refers to personal, family or business finances. However, it does not refer only to the savings that can be had. Although it is expensive to get it, saving money can be more expensive if there is a macroeconomic factor called "inflation." Basically it is a general price increase. In this case, the money that we have set aside loses value, since it does not grow by itself.
Therefore, the best option is to put the money to work. Once we have reached a good level of savings, we must investigate what are the best options we have to invest it. For this we must take into account the security of the investment, since some can carry high risks.
To clarify well the idea of why savings can end up losing value, we are going to explain what an investment is. In this activity, the savings in a project or instrument are used in order to obtain a performance or benefit in the future, be it near or distant. When choosing something to invest in, we must compare three factors of the different options: The performance, the term they last and the risk. Ideally, the investment should be low risk, high return, and last a reasonable time. It sounds easy, but it is very difficult to find ideal investments.
How to invest a little money?
As investments involve various processes and risks, An analysis must first be carried out before making a decision. The goal is to obtain the maximum possible return with the lowest possible risk and in the shortest possible time. In order to find a balance between these three variables, we must follow a series of steps:
- Study all the options.
- Decide the amount of money that we are going to invest.
- Set a profit goal.
- Establish a strategy.
Making a decision takes time, so we should not rush and think about things as many times as we need to. Also, it is worth considering diversifying your investments. Spreading the money over different instruments helps protect you from losses that can occur. In addition, it improves performance. With this in mind, we are already one step closer to knowing how to invest money.
Amounts
As is well known, investing money always carries a risk. Therefore, it is best to invest only if we have some money saved and if we can afford to lose a little of our income. without affecting our financial health. After all, the main idea is that we can maintain our standard of living in any case. So we set aside money to invest and we will never take more than we have available for it.
We have already mentioned that the best option is to diversify investments to improve performance and protect against occasional losses. For this we must select different instruments in which to invest and decide the amount of money that we are going to put in each one. The best way to make so many decisions is to draw up a plan taking into account risk, time frame, return, and our level of tolerance for uncertainty. And so we will have already achieved an investment strategy.
Where can the money be better invested?
What we want to invest our money in is a very personal decision and should always depend on an analysis that we have carried out previously. However, it is important to know both the risk characteristics, the liquidity or the profitability that can be obtained through some of the most common investment instruments.
In addition, we must be clear about how much money we are willing to invest and our preferences regarding the control of the instruments. If we are new to this world, it is advisable to use instruments that carry low risk. This way we can increase our knowledge and become familiar little by little.
Regarding the means we have to make investments, there are different possibilities. The safest thing is usually to invest through banks. There are also so-called "Brokers", who are intermediaries between buyers and the market. However, we must be very vigilant, since There are many websites and applications that are called "Brokers" but that do not really establish any relationship with the market, if not they create their own market. Keep in mind that they benefit from our losses, so they can manipulate the charts.
Investment instruments
To know how to invest money, it is important that we know all the options we have to do it. Below we will find a list of the most common investment instruments:
Investment funds
Mutual funds are investments that are managed by institutions that pool the money of various stakeholders and thus become the shareholders of that fund. There are three classes: Debt, Equity and Capital. These funds do not guarantee performance and the more they risk, the higher the return, but also the risk.
Actions
The actions are titles that the companies emit to be able to be financed. Buyers acquire rights, such as receiving dividends if the company distributes them. The strategy for this investment instrument is to receive the dividends or sell the shares for a higher price. The liquidity of these investments is high, as is their risk, since the market is very volatile.
passes
When we refer to bonds, we are talking about debt securities of both companies and governments or other entities. These institutions issue them to be able to finance themselves and They offer the buyer the right to periodically receive fixed interest from the beginning. The returns on this investment instrument are good, but not as good as in the case of stocks.
Real estate
To know how to invest money, one option is in real estate. In this case, the investor buys real estate to rent or sell it at a higher price. It can be both land and houses or flats. The different areas also vary in price depending on the location, communication and environment. Any alteration in one of these factors can cause an increase or decrease in the value of real estate in an area.
Business
Another option is to invest in business. Namely: Provide the funds that are required to obtain benefits and later sell the participation percentage. This option can be done in your own business, someone else's, a new one or an already established company.
Gold
Investing in gold works the same way: This raw material is bought to later sell it at a higher price. To acquire gold there are two ways to do it:
- Direct way by means of gold coins or bars.
- Indirect way through certificates of deposits.
It is a very profitable investment if we know well when is a good time to buy and sell. As an investment it is a great idea both in the short and medium term, as many people take refuge in gold when there is instability.
Buying and selling currencies
The Forex, or Foreign Exchange, is the currency market that turns out to be an investment alternative whose risk involved can vary considerably, compared to other investment instruments. It is about buying and selling currencies from different countries such as euros, dollars or yen, among many others. Currencies gain or lose value depending on changes in the market. These variations are an opportunity to obtain returns. However, this investment instrument is not suitable for everyone, since the risks depend on each person and the gains or losses are very high and vary in a very short time. Therefore, it is one of the least stable and riskiest investment instruments.
Cryptocurrencies
The purchase of cryptocurrencies is made through secure digital services, just like currencies, since After making a movement in the account of one of the holders, an unalterable record remains. Regarding investment, the idea is to buy units of the corresponding cryptocurrency to later sell them for more money.
I hope this article has helped you understand the world of investing a little better. Investing is fine and can solve the future, but we must always do it with a head and maintaining our financial health.