Today, securing a financial future comes with wise investment options. Because so many companies do not offer pensions as was regular practice years ago, creating a financially secure future typically becomes the responsibility of the individual. Even 401K programs offered by companies are simply not sufficient to provide a means of living during the years of retirement.
One of the best things a person can do to ensure a solid and financially secure future is to learn how to invest. When done right, investments can turn into a nice income stream. With the money generated, a person could continue investing into various stocks and bonds as a way to strengthen a portfolio. In truth, investors have multiple options for investing although to be successful, a person would need to know what types of investments to consider and how to avoid potential risks. Of course, a financial advisor would be an excellent source of information if needed.
It is common to have questions about investing. Some of the questions that novice investors ask most include the following:
- Is a financial advisor mandatory?
- Does a brokerage firm need to be involved?
- What are bonds?
- What are mutual funds?
- What types of investments are best long-term?
- Is there an easy way to learn the language of the stock market?
- What are penny stocks and do they make a good investment?
To better understand the world of investing, it would help to review the answers provided for a few of the example questions listed above.
What are Bonds?
In simple terms, bonds offer a means of decent and reliable income. Bonds are like lending money to a corporation or the US government. Along with receiving the bond, an individual would be provided with an agreement from the issuer of the bond guaranteeing that the face value will be paid along with interest within a specific timeframe, usually between three and six months. Bonds are low risk investments, especially when issued by companies experiencing financial hardship.
What are Mutual Funds?
In this case, the investment is actually a collection of stocks, securities, and bonds owned by a number of different investors or in some instances, several hundreds of investors. However, a fund manager is responsible for managing stocks. This manger works on behalf of fund owners and as part of the job, sells and buys stocks at will. To reduce investment risk but also diversifying the portfolio, mutual funds are an excellent option. However, it is important to note that the success of the fund depends completely on the fund manager’s skills and decision making abilities.
What is the Forex Market?
FOREX is the acronym for Foreign Exchange trading. Although this type of investment has been an option for years, it has gained a tremendous amount of interest in recent years. One thing that people love is that the Forex market is actually uncomplicated. With this, an investor would have the ability to determine the actual value of fluctuation for a specific type of currency. Keep in mind that the Forex market is globally exchanged. Because of this, there is not a central exchange but in addition, this particular market is always open.
Futures and Options
People can also look at futures and options. For this, a future is a contract used to describe the trade of a specific asset and at a set price but at a predetermined time in the future. In other words, a person would agree to buy an asset today at a future date weeks or months down the road and for a price set now. Since the asset price could decrease the closer the maturity date approaches, futures have potential for significant financial profit.
Options on the other hand are a contract whereby a buyer has the right to purchase an asset for a set price. In other words, once the contract reaches maturity, the agreed upon price would be paid for the asset opposed to paying a price based on current market value. If the price of the asset has gone up at time of maturity, options would also have potential for a significant return. However, there are risks of financial loss with options that should be understood as well.
For a person to determine the best type of investment, several things would need to be considered such as:
- Long-term goals
- Paying off a home mortgage early
- Anticipated age of retirement
- Children going to college
By knowing goals long-term, a person could identify the short-term goals that should also be achieved. We want to point out that all investments come with risks although some are worse than others. As an example, bonds are a relatively stable investment that can produce a nice annual income. There are several types of bonds from which a person would choose according to ultimate goal. As an example, if someone wants to have money available to send kids to college, government bonds would be ideal. In addition to producing tax-free income, they pay decent interest. The only drawback is that maturity takes years to reach.
Investing involves a lot of learning, not only about the different types of investments but also strategies for increasing return and reducing risk. Someone interested in investing should conduct in-depth research to learn about investments of interest. While gold is an obvious choice, real estate can also be an excellent investment, even in an economy that is healing. The bottom line is that the more a person knows and understands the easier it is to make wise decisions that will support a secure financial future.