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