How to Invest
While some have built their fortunes around investing, you don’t have to be a millionaire to try your hand at investments. Whether you’ve set aside thousands or a pocketful of change to begin with, you have a variety of options. We’ve organized a few based on risk and financial requirements. Anyone can learn how to invest, they just need to know what’s available with their amount of money.
When you have a little money…
You don’t have the money to do anything wild and risky, so here are safe ways to make your small investment grow.
- Mutual funds
Mutual funds take the stress out of investing. A mutual fund is one huge pool comprised of many people’s investments. With this method, you invest your money into a mutual fund and hand the reigns to a mutual fund manager. The manager is in charge of actually selecting and investing your (and everyone else’s) money in a wide spread of stocks, then monitoring growth. You can put as little as $100 in a mutual fund, which compared to other investment options, is one of the safest ways to invest.
An investment portfolio is typically made up of stocks and bonds. Compared to stocks, bonds are less risky but also less lucrative. Bonds are technically considered debts. When you purchase a bond, you’re acting as a lender to a company. After a maturity period, you’ll receive the face value listed on the bond and in the meantime, you’ll profit from interest. The (often semi-annual) interest rate of a bond, also known as the “coupon,” is a predetermined percentage of the face value; if you’re buying a $500 dollar bond with a 9% coupon, you’ll receive $45 twice a year until your bond matures.
There’s an app for everything these days, including investing. There are online or mobile options for people who want to take baby steps towards investing. Acorns is an innovative smartphone app available to iPhone and Android users, allowing users to invest in mutual funds using the spare change from card purchases. The app is free to download and the service costs $1 a month for accounts under $5,000. If you’re interested in stock investments, try Robinhood. Unlike other brokerages, Robinhood doesn’t have any trading fees, and there’s no account minimum.
When you have some money…
Are you getting the hang of investing—and have the money to show it? Here are some options for those of you with $10,000 or more.
- Micro-cap and Penny Stocks
Are you getting the hang of investing? Try investing in a micro-cap company, sometimes called penny stocks. These are publicly traded companies with a market capitalization between $50 and $300 million, setting them at a sweet spot for growth. Market capitalization is a good measure for growth and risk; a company with a high market capitalization, like Apple or Coca-Cola, is a safe investment. While there may not be huge returns, there’s very low risk involved.Micro-cap stocks carry the potential of high profits or big losses, but that’s the risk involved with startup companies. In fact, they aren’t traded on the New York Stock Exchange. Instead, you’ll find microcap stocks on the OTC Bulletin Board, which isn’t as regulated as the NYSE. That’s not to say that micro-cap investments aren’t worth trying. These smaller companies will eventually outperform the big dogs over time.
- Money Market Accounts
A money market account is a special type of bank account that requires a high minimum balance (the absolute minimum tends to hover near $9,000) and limited withdrawals. These accounts have an edge above others, as they have a lofty interest rate, and are considered to be the safest investment accounts around.
When you have a lot of money…
These are the thrilling, high-stakes options. Investors ought to have big bucks or lots of guts (preferably both) to make these strategies work.
Here’s the thing about stocks: they yield the best long-term profits, but can be very risky. Investing in stocks can stress you out. Inflation and market instability may cause short-term losses, so don’t lose hope if you don’t see any gains immediately.
- Hedge funds
Hedge funds are like mutual funds for multi-millionaires. There are income requirements that restrict everyday people like us from investing, but there’s good reasoning behind those limitations. Unlike mutual funds, hedge fund managers often do high-risk investments expecting a huge profit. While most hedge fund managers are financial wizards, there is the chance that you’ll suffer drastic losses.
The bottom line? The best investment strategy is going to be different for each person, depending on your risk tolerance and available capital.