Lucky you, you’ve got a few extra bucks to invest. What to do now? Everybody you ask will have an opinion on this one. And chances are, all of them will be different. Your grandfather who lived through the depression may advise you to buy a government bond. Or even stuff a portion of it into your mattress for a rainy day. But the problem here is that a little thing called inflation — the decreasing value your money as prices for goods and service rise over time — can eat away at your fortune faster than the government will pay you a return.
That’s why grandpa isn’t a wealthy guy, by the way.
Should You Put It in the Bank…Or Not
You can open a bank savings account, which these days will get you a return of about one to two percent, maybe a little more if you’re willing to sign away your right to access your money for a year or two. Again, that inflation thing is your enemy.
And remember, while the bank is paying you one percent, they’re investing it themselves elsewhere — that’s right, your money — for a much higher rate of return.
Investing in Real Estate
Okay, how about real estate? Well, once upon a time that was close to a sure thing, as long as you were willing to maintain the property (which isn’t free) and could wait until a buyer came along. But like so many things about investing these days, that, too, has changed.
Homes, for example, can take years to sell. And for the first time in decades, the price you’ll get when you do sell may not even be what you paid for it in the first place.
Investing in the Stock Market
Which brings us to the stock market, the most fundamental of all investments.
Why fundamental? Because a share of stock represents a portion of ownership of the company whose name is on the stock certificates. Own enough shares and you can actually vote yourself in to run the place.
But that’s not the idea with stock market investing.
The idea is to either buy low and sell high for a profit, or to invest on good fundamental prospects for a company and hang on for the ride. Because when your company succeeds over the long term, so will you, in the form of an investment that has increased in value in approximate accordance with the growth and profitability of the company.
Of course, it doesn’t always work that way. There are thousands of factors that come in to play, all because there is a vast and unpredictable marketplace between you as the owner of stock and the company you’ve invested in.
So where should you invest your money?
The answer depends on several things.
First, your comfort level. If you can’t accept a reasonable amount of risk — and all investments entail risk, even the so-called safe ones, which are not immune to the eroding effect of inflation — then your options become limited. Risk is always part of the investing decision.
Next, your investment goals. Are you looking to make some near-term money, or are you planning for your retirement? They are very different modes of investing, and to mix them is to risk your nest egg.
And then, your level of knowledge. Every investment has its own array of factors and pressures, and your comfort level and return depends on your comprehension of them. There are plenty of professionals out there to help you navigate these waters, but that, too, is not free, and not always without risks of its own.
Investing your money will always be a combination of all of these factors. Don’t rush your decision, because the market will be there when you’re ready. When that happens is completely up to you, because the information is out there and easily acceptable.
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Larry is the author of TradingStocks.com, a blog about stock and options trading strategies.
Article copyrighted by Larry, TradingStocks.com. Content published with author's permission.
Very solid article, provides essential information for deciding where to invest your money.