The adage goes something like ‘the best time to start investing is now.’ For some beginners, this can be painstaking, considering the volumes of information on the best investment with guaranteed returns. Other beginners will think this is an easy way to make a quick buck and plunge head first in the markets.
This post is for the amateur investor who is ready to make a strategic decision to safeguard their investment against exposure to unsustainable risk, but with enough latitude to pursue conservative opportunities that yield capital gains, and learn the ropes of the trade while at it.
Apart from the theoretical understanding of how the financial markets operate, it is imperative that a beginner gets a realistic feel of the different strategies investors employ in pursuit of opportunities in the markets.
The following is a detailed explanation of five best investment approaches suitable for beginners:
Exchange-traded funds (ETFs) offer a less rigorous opportunity for participating in the stock exchange. As a beginner, investing in ETF is ideal because an ETF pools together several assets including particular stocks, commodities and bonds, and the performance tracked against an index. ETFs allows you as the investor to trade several assets commonly as if they were a single stock. The diversification of the ETF enables beginners to access a broad portfolio of stocks and bonds providing the convenience and reduced risk. Consequently, the flexible nature of ETFs allows an investor to trade flexibly, with the choice of buying and selling at any time during regular trading hours.
- Mutual funds
Mutual funds are pooled investment vehicles ideal for beginners because of its two primary characteristics. First, a beginner is able to access the services of a professional trader in the name of fund manager despite the meek amount of capital, some as low as $25. Secondly, the investor is exposed to minimal risk because mutual funds, like ETFs, invest in a diverse asset class portfolio of stocks, commodities, and bonds across different markets and industries.
- Individual stock
After a detailed analysis of the past performance of an individual stock and the prevailing facts, individual stocks can offer a stable investment opportunity suitable for beginners. Caution should, however, be placed to ensure that the investment into the particular stock does not upset the risk tolerance level of your portfolio in case of a negative turn of events. Markets is not always predictable.
- Certificate of deposit
Depositing money in a bank over a specified term length with a fixed and guaranteed return of capital plus interest is a sound investment opportunity for a beginner. Certificate of deposits is insured and hence the capital plus interest are guaranteed to the investor at maturity. However, it is important to understand that access to this money is limited during the stipulated investment term length and may attract fees or loss of interest in case of withdrawal.
- High Yield Savings Account
This investment also entails saving for the sole purposes of earning capital gains from interest over a specified term length. However, unlike the certificate of deposit, the interest is not fixed and hence interest is according to the prevailing market rates. Funds in this account are however more liquid hence easily accessible.