If becoming an investor is part of your New Year’s resolutions, you aren’t alone. According to Forbes Health, improving finances is the second most common resolution, vowed by 38% of people surveyed.
Investing isn’t rocket science, but gathering some knowledge before joining the market is crucial. Here’s what you need to know before making money work for you.
The complexities of the financial market can be intimidating, but the good news is that you don’t need to be an expert to get started. Robo-advisors such as Wealthfront and Betterment are the best way to start if you’re not following market oscillations.
However, it’s crucial to learn everything about the app or platform before putting your money into it. The same way that you would first learn about a new role in a job, taking up a new hobby or playing your first game of poker or GTA. You need to learn the fundamentals so that you understand what is happening so that you know what you are doing.
It’s advisable to research its reliability, other users’ testimonials, membership T&C, and investing fees. Consider looking for a professional financial planner for advice.
Above all, you’ll need a clear understanding of your finances. Clear financial goals are essential for devising an efficient investment plan. Before placing your first investment, make detailed and realistic estimates of your monthly cash flow. It’s also wise to have an emergency plan if things don’t go as you planned.
Top Investment Options
What’s the best investment option for you? It partially depends on your investing style. Active investors manage their portfolios aggressively, trying to get ahead of the curve and beat the index. In contrast, passive investors prefer to stick to index funds, as they’re less risky.
Growth investors usually go for high-growth companies because they offer better valuation ratios. If you prefer higher dividend yields, you’re a “value investor”, which means you’ll be better off investing with lower Prices-Earnings (P/E). There isn’t a fail-proof approach, though. Each style has advantages and disadvantages.
There’s a vast variety of stock funds to choose from, including growth stocks, value stocks, dividend stocks, and others. Growth stocks funds seek fast-growing companies and can provide likewise fast revenues. However, such investments tend to be riskier and aren’t advisable for more conservative investors.
Value stocks are undervalued, meaning they cost less than their intrinsic value. Such an investment pays off when stock prices go up or above their intrinsic value.
Dividend stock funds are arguably among the most reliable options. They provide continuing and consistent income, which can be reinvested or cover your losses.
There are no saints in the financial market, but you can still be an angel. Angel investors are individuals willing to put money into startups in exchange for ownership or equity in the company. Your investment can get you minority equity stakes, which will grant you returns in case of exit, IPO, or the sale of that company.
It’s a risky investment, and outcomes are often unpredictable. However, potential returns are enormous. That’s why you must research carefully about a startup before investing in it. It’s your chance to tap into new technologies, such as blockchain, that can transform traditional industries.
Have you ever heard that we should never put all eggs in the same basket? Diversification is a crucial concept for seasoned investors, and investing in commodities is an excellent way of diversifying your portfolio. Commodities can protect your investment against inflation and market downturns. It’s an excellent option for long-term investors.
A savings account might not sound like an exciting investment. Still, high-yield savings accounts can make your money go further. High-yield savings accounts can be pretty advantageous during periods of high-interest rates.
Points to Consider
The financial market is capricious, often defying the most calculated predictions. Still, it’s better to try foreseeing the future based on the best knowledge available than walking blindfolded into it.
Hedge Against Inflation
Inflation is going down in developed countries. After reaching a peak of 7.9% in 2022, inflation has dropped to 3.3%. There are many reasons to believe this trend will remain in 2024. Current numbers point to a deacceleration of wage growth and job gains. The job market is slowly resuming to typical figures in economies like the United States.
Yet, it’s too soon for celebrations. Despite good news, inflation is still likely to stay above the past decade’s level.
Bonds Are Back
Bonds are less volatile than stocks and tend to grow when interest rates and economic growth move in the opposite direction. However, negative yields are heading to extinction worldwide. Now, about 60% of global government debt yields over 3%. It’s excellent news for those investing in bonds, but the bonanza might not last. Rates are steeply declining, losing more than 80 basis points since last October.
Higher interest rates make credit less accessible, creating what specialists call “credit stress.” Credit is likely to become more expensive in specific sectors, but it isn’t a widespread trend.
A new credit crunch seems unlikely, and central banks can still lower interest rates to counter the damage caused by pockets of credit stress. Nevertheless, credit stress pockets can be an investment opportunity for skilled fund managers. It’s still possible to profit from market shares in high-yield markets.