What is Investing? A Simplified Introduction

Making decisions about investments can be worrisome, particularly if you have no experience in stocks, bonds, or the alphabet soup (NASDAQ, FTSE, DAX) of the markets. You know you need to invest in your 401(K) and to avail yourself of your employer match as possible, but then what? This article explains the concept of investing and exemplifies what it is good for.

What Is Investing?

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To a great extent, the concept of investing is a combination of delayed gratification coupled with the heady rush the gambler feels, hoping for riches. To invest now is to avoid spending presently to enjoy income later. Inherent in the process of choosing investments is the hope of greater returns thanks to compound interest and appreciation in the value of your investment.

Economic historians believe that The East India Company was the first organization to offer a publicly traded stock. East India engaged in risky behaviors; sailing to the edges of the earth offered the chance for great reward or tremendous loss.

To share this risk, investors were able to invest on the chance that some ships would return loaded with profitable trade groups. Since committing monetary support to one ship was too risky, spreading the risk over several trading ships could gain a consistent profit.

Because we have the option to invest in tangible products, the comparison to gambling is not entirely accurate. Some people say you should never gamble money you can’t do without. Some would say the same of buying into the stock market. More accurately, it is true that you should never invest money you will need back quickly. The concept of investing is similar to that of planting a garden. It is a simple form of investment. While the harvest is your reward, picking your produce too early will yield poor results.

A Detailed Account of the Concept of Investing

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First of all, many behaviors can be considered investments. If we work with the concept of investing as a delayed gratification and a contributor to future abundance, the following activities count:

• Spending time at the gym in your youth can lead to a much healthier and mobility in old age.
• Buying in bulk when non-perishables are on sale can save money later.
• Gaining an education early in life can increase your financial opportunities in adulthood.
• Saving for specific purchases, such as travel and holidays, can help you establish a budget for these events and find the best prices.

As such, saving for emergencies can reduce your risk of paying high interest for a critical purchase.

For this example, let’s consider emergency savings. Many of us drive every day, and we must have a car to get to our jobs. Let’s say you experience an automotive breakdown that costs $700 to repair.

With access to emergency savings:

1. you repair the car and have no major disruptions in your employment.
2. Because you know how important emergency savings can be, you build it back up.
3. This can be done in several ways. You may need to pick up extra hours at your current job or take on a temporary part-time position.
4. For the next few paychecks, it will be important to purchase only critical items needed to keep your household going until your emergency savings is built back up.

Without emergency savings:

1. you figure out how to do without a car. This may require a lot of juggling in your household to keep two careers running on only one vehicle, taking public transportation, or getting rides from friends and co-workers.
2. You put the car repair on a credit card or get a loan.
3. The debt plus the interest cut into your ability to save for a future emergency.
4. Your next emergency leads to more debt.

Thus, a savings account is not glamorous, and the interest you gain on it can be paltry. Yet, what savings offer you is a guard against future debt and protection against making a crisis buy. Financial difficulties happen to everyone; with savings, these difficulties don’t have to be catastrophic.

Examples of Investing

Real estate properties are an excellent way to build a portfolio of tangible assets for future financial security. You can start small, build equity and pick up new skills along the way.

Living In Your Rental

One of the simplest ways to start in real estate investment is to purchase a twin home or duplex. Make upgrades or repairs if needed, invest in a simple, neutral décor, and let your renter pay a major portion of your mortgage. This living situation may not be your ideal dream home but remember: most starter homes are not profitable. A multi-family home now can be your dream house later!

Using A Rental Manager

Rental managers are a significant investment. The right rental manager will:

1. screen applicants
2. run credit and security checks
3. make your tax time easier.

Many rental managers take a portion of the monthly rent payment, and some will get a portion of the first month’s rent for marketing and screening. Make sure your rental manager doesn’t get paid until the property is filled.

Financing

You can get an owner-occupied loan for your investment property and, once you’ve lived there a year, legally move to another home. There are rental income benchmarks that you have to meet before purchasing another property, so a careful review of your loan requirements is critical.

Stay Flexible

Sometimes the difference between a dream home and living nightmare is timing. Don’t be in a rush to buy your investment property, and use your searching time to build savings, so you have plenty of cash and flexibility after closing.

Conclusion

However, turning effort into future wealth and security is a slow process. Building wealth and the security that accompanies it takes time. If any investment looks like a great deal but wipes out your cash reserves, it’s not a great deal for you.

Be aware that choosing the right investments, particularly real estate properties that you plan to improve, can turn into a second career. The time you put in now will pay off in the future.

Your investment needs are as unique as your dreams and goals. Therefore, investment advice is great to have. But, when planning your future, a tailored approach is critical. Consider the broad array of investment advice to be a smorgasbord of options, not a detailed map.

Keep an eye out for more, and please share your hard-earned expertise!