YOGYAKARTA - The idea of investing can be scary if you're just getting started, but it's an important part of saving for a variety of financial goals and building wealth. You'll be facing a lot of different market environments throughout your investment life, so don't be too fixated on whether now is the right time to start a type of investment for beginners.
But before making any investment, it's important for new investors to know what their tolerance for risk is. Certain investments carry more risks than others and you don't want to be surprised after investing. Think about how long you can do it without the money you're going to invest in and whether you're comfortable not accessing it for a few years or longer.
Here are some of the best investment ideas for those who are just starting out.
Cash bank deposits are the simplest, easiest to understand and safest investment assets. This not only gives investors the right knowledge of the interest they will acquire, but also guarantees that they will regain their capital.
On the downside, interest obtained from cash deposited in savings accounts rarely beats inflation. Deposit certificates (CD) are ill-liquid instruments, but usually provide higher interest rates than those in savings accounts. However, the money entered into the CD is locked for a certain period of time (months and years), and there may be an early withdrawal penalty that will appear.
Bonds are debt instruments that represent loans made by investors to borrowers. Typical bonds will involve companies or government agencies, where borrowers will issue a fixed interest rate to lenders in return for using their capital. Bonds are common in organizations that use them to finance operations, purchases, or other projects.
Bond interest rates are basically determined by interest rates. Because of that, they were widely traded during the quantitative easing period or when the Federal Reserve or other central banks raised interest rates.
Mutual funds are the type of investment where more than one investor collects their money together to buy securities. Mutual funds are not always passive, because they are managed by portfolio managers who allocate and distribute joint investments into stocks, bonds, and other securities.
Most mutual funds have a minimum investment between $500 US Dollars or USD and $5.000, and many do not have a minimum at all. Even relatively small investments provide exposure to as many as 100 different stocks contained in certain fund portfolios.
Funds are sometimes designed to emulate basic indices such as the S&P 500 or the Dow Jones Industrial Average. There are also a lot of mutual funds actively managed, meaning they are updated by portfolio managers who are carefully tracking and adjusting their allocations within the fund. However, these funds generally have a larger cost such as annual management fees and front-end fees that can cut investor profits.
Mutual funds are assessed at the end of the trading day, and all buying and selling transactions are also carried out after the market closes.
Exchange-traded funds (ETFs) have become very popular since their introduction in the mid-1990s. ETFs are similar to mutual funds, but they trade throughout the day, on stock exchanges. In this way, they reflect the buying and selling behavior of stocks. It also means that its value may change drastically during trading days.
ETFs can track underlying indices such as S&P 500 or any other share that ETF publishers want to underline certain ETFs. This can cover anything from emerging markets to commodities, individual business sectors such as biotechnology or agriculture, and more. Due to the wide ease of trade and coverage, ETFs are very popular among investors.
Shares allow investors to participate in the company's success through an increase in stock prices and through dividends. Shareholders have claims to the company's assets in terms of liquidation (that is, the company will go bankrupt) but do not own these assets.
Ordinary shareholders enjoy voting rights in shareholder meetings. Preferent shareholders do not have voting rights but accept preferences over ordinary shareholders in terms of dividend payments.
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