Financial Investing 101 For the Average Investor

It’s been said that the stock market is a bit like a legal casino. Placing money into the stock market is similar to the guesswork when playing a parlor game for the average investor. There’s risk involved for sure, especially if you don’t know the rules, advantages, and disadvantages of the market.

Investing in the stock market does come with some risk. Still, with some education and professional direction, an individual can have an opportunity to invest and increase their holdings to build more wealth.

Think of it this way. If you had a guarantee – say, for instance, that NBA betting lines guaranteed you would win – you’d take those lines. Of course, an upset may still occur. However, with intelligent planning and analysis, you should be able to come out on top. There are various ways for individuals to invest, and each type of investment comes with a risk/reward ratio. In general, the higher the reward, the greater risk that occurs.

High-Yield Savings Accounts

High-yield savings accounts provide higher rates of return for your savings than traditional ones. That said, it’s a conservative savings account with lower returns than other investment vehicles listed below.

Certificates of Deposit

A certificate of deposit, known as a CD, is an investment that provides a fixed rate of return based on the predetermined rate and length of time with the CD. As a financial product, a CD is excellent if you have some money, you can park safely for a while and won’t need to touch it. The longer the money sits in the CD, the better the yield.

Money Market Funds

A money market fund is a financial vehicle to buy a collection of high-quality government, corporate, or bank debts for short-term holding. There is a slightly higher return than the previous investment vehicles listed above, but it provides a little higher return. This type of investment is suitable for people looking to diversify their holdings with some more secure investments than traditional stocks.

Treasury Bonds

Backed by the full faith and credit of the United States Government, treasury bonds are known as a fixed-income security. This is because they provide a set return for a set period of time, similar to CDs.

Mutual Funds

A mutual fund is a pool of money from multiple investors to diversify holdings into stocks, bonds, and other securities to hedge against risk and find greater long-term returns. They are ideal for the average investor that needs to grow their investment and minimize risk, yet doesn’t understand the market well enough, so they place their trust in professional management. If you’re looking to invest in a mutual fund, you could also look to opt for an interval fund instead.

Index Funds

Index funds are ideal for long-term savings. They don’t require a professional management service and provide steady rates of return with lower risk for the investor. In addition, they offer more constant growth, and the lack of severe volatility makes index funds a safe, attractive way to grow your investments.

Exchange-Traded Funds (ETF)

ETFs operate similar to mutual funds in that investors pool their money with others to purchase a collection of securities. The difference between mutual funds and ETFs is that ETFs are individually purchased and traded common stock, giving the investor more flexibility in their holdings.

Bitcoin and Crypto-Currencies

The as-of-yet unregulated marketplace of crypto-currency trading provides for a speculator’s dream. Since its invention in 2009, Bitcoin has led the market of crypto investing and is recognized as the anchor for other cryptos. The yields with various crypto can be astronomical but can also be volatile.

As a result, the deregulated, decentralized “currency” can suffer severe swings in value, sometimes in mere minutes or hours. Understanding the crypto market, finding the best types of exchanges, and not getting caught up in the most hyperbolic fads on social media, approaching crypto as a long-term risk/reward investment could yield significant gains.

Real Estate

Real estate is an investment that is nearly as safe as it comes. The benefits of investing in real estate are that it provides a buffer to inflationary costs, allows to leverage of debt into wealth, provides stable appreciation, and builds long-term equity.

Investors can choose to buy-and-hold, fix-and-flip, or rent for passive income to pay off the mortgage while the property appreciates, giving significant long-term returns. For the investor, there are various ways to park your money and get an acceptable rate of return outside of the volatility of the traditional common stock.