If you have some extra cash and do not know what to do with it, why not invest it? However, before you spend your money, you need to acquaint yourself with the relevant investing skills, so you don’t walk blindly into an investment you have no idea of what to expect. Here are some different types of investments for beginners:
1. Treasury Bills
This is a short-term, low-risk investment. It basically involves lending to the government, which in turn pays you back with interest. The amount of money you are able to generate depends on when you made the investment since interest rates change constantly. The maturity of these treasury bills can vary from just a few days to a maximum of 52 weeks. The longer they take to mature, the higher the interest rate. The interest generated from T-bills is not included in the state or local income taxes, but it is subject to federal income tax.
By purchasing a bond, you are loaning a specified amount of money to the issuer for a specific period. Consequently, the issuer promises to regularly make interest payments at a specified rate until the bond is due, after which they repay your principal after maturity. There are however some bonds that do not follow this rule such as zero coupon bonds. Generally, you invest some money and collect interest on it, and then later get your money back after maturity. Another way you could make money off bonds is by selling them at a higher price than your initial payment.
Typically, investment funds belong to a group of investors. While the group purchases securities as one entity, each investor maintains control over their shares. Working as a group brings with it some advantages. You are able to offer better returns and manage risks adequately due to the presence of qualified investment managers. Also, the gains from economies of scale are quite substantial. A fund manager is supposed to make decisions on what securities it should hold, how much it should hold, and when the securities should be sold or bought.
4. Cash Equivalents
A cash equivalent is an asset that can quickly be converted into cash. By investing in cash equivalents, you are able to protect the investments you made at the beginning and still have access to your money. The most popular examples are; savings accounts, money market accounts, and certificates of deposits. They are short term investments that have a constant rate of return. For example, a company may decide to invest some cash that has not yet been allocated to any specified item.
The shares you own in a company’s stock represent your piece of that company. There are many different types of stocks that are mostly described in relation to a company’s size, type, how well they do during market cycles and their potential for either long term or short term growth. Investing in stocks allows you to take advantage of a booming economy and safeguard yourself against inflation.
6. Bank Products
Banks or credit unions provide a safe and convenient way to accumulate savings. Deposits made to banks are usually federally insured up to a limit set by Congress. On the other hand, checking and deposit accounts offer liquidity to ease the process of access to your money. Important to remember is that bank products do not attract as high-interest rates as other investments.
7. National Pension System
If you wish to receive a pension during your retirement years, it might be a good idea to invest in the National Pension System. The NPS may be defined as a contribution system where you get to choose what your contribution should be invested in; the choices range from bonds, government securities, and other investment options. This pension scheme provides you with two choices: the auto choice where your contribution is shared among various assets according to your age; and the active choice where you get to decide how you want your funds to be invested. Only after you are sixty years old does the scheme mature.
By definition, an annuity is a contact you make with your insurance company. There are four main parties involved in an annuity contract: the contract owner, annuitant, beneficiary, and the insurance carrier. In the contract, the company agrees to make regular payments. If the payments begin immediately, it is known as an immediate annuity, and as a deferred annuity if it is paid at a future date.
Investing is a risky business. It is similar to placing a bet on your favourite football team. Sometimes they win, and sometimes they don’t. To increase your chances of winning, you must hedge your bets by spreading your investments across different types with varying degrees of risk. As an investor, avoid putting all your eggs in one basket.