Get to know the Types of Investment and How to Invest for Beginners
Type of investment
Before discussing more about types of investments and how to invest, please note that investing is the activity of placing money in one or more assets for a certain period of time.
For the purpose of generating income or increase in value. Simply put, investing is one of the tools to achieve our financial goals.
Basically, everyone's financial goals are different. For example, a 25-year-old definitely has different plans and goals than a 50-year-old.
Types of Investment Based on Purpose
1. Short Term Investment
Short-term investments last from less than a year to three years.
For example, a 25-year-old person plans to get married in 3 years. So he needs new money to organize a wedding that doesn't come cheap.
Faced with this need, young people are advised to invest in low-risk instruments in the sense that they have stable volatile value.
Are highly liquid to be easily converted to cash and can generate income. Some suggested instruments for him are deposits, money market mutual funds or short-term government bonds.
Can this young man invest in stocks for this financial purpose? You can, but of course it's not recommended.
The reason is that stocks are highly volatile instruments in the short term. Buying stocks is like buying a business, and the growth of a business certainly cannot be measured in the short term.
2. Medium Term Investment
When a person has a financial goal of 3 to 10 years, it can be called a medium term investment.
For example, in the next 5 years, Mr. Randy will enroll his son in a famous university in Canada. Therefore, Mr. Randy needs a large fund to pay the admission fee and the first semester.
Since his funding needs span more than 5 years, Mr. Randy may choose instruments with slightly higher risk than deposits, money market mutual funds or government bonds, in the hope of achieving get higher yields.
The instruments in question are fixed income mutual funds (bonds), private bonds, mixed mutual funds.
3. Long Term Investment
When the investment target is greater than 10 years, the investment is included in the long-term portfolio.
These investment goals can take the form of child rearing costs, child marriage arrangements, property purchases for children and grandchildren, and retirement funds.
The longer the investment period, the more flexible one chooses the instrument. They can choose low, medium, high risk instruments or instruments that do not convert quickly.
Some of the instruments that can be chosen for long-term investing include precious metals, equity mutual funds, stocks, and real estate.
How To Invest
Investing is not difficult because in today's digital era it is very easy to get information about investment, tools or market research. However, investment certainly cannot be made at random.
This is a good way to invest in order to achieve our financial goals.
1. Make Sure We Are Financially Healthy
Before investing, make sure you have an ideal emergency fund and are financially protected by having health or insurance coverage.
Financial planning for the future is very important. But never underestimate the things that are of concern and priority in the present.
Without an ideal emergency fund, we would struggle to cope with the risk of loss of income due to layoffs or economic turmoil. If we don't protect our health, we can also lose a lot of money when we need treatment.
2. Set goals first
Know the financial goals to be achieved at different points in time. Called short term, medium term and long term. Without a clear goal, the investment process will be futile.
After setting goals, also identify funding needs to achieve them. We can start the investment process after understanding the capital requirement.
3. Identify the risk profile
Each investment instrument has different investment characteristics and each investor also has a different risk profile. The risk profile depends on one's ability and willingness to take on investment risk.
Prudent investors tend to avoid highly volatile instruments and aggressive investors are more willing to take on risk as they seek high returns.
Of course, the risk profile may change as investment insights begin to improve. A better understanding of investments increases risk tolerance.
4. Identify systematic and unsystematic investment risks
If the risk profile has a reference to the investor's sentiment, there is also an investment risk that the investor cannot escape from.
In investing, there are two types of risk, systematic and unsystematic risk. The system is a completely unavoidable and diversified risk, and attacks all kinds of tools at the same time.
These risks can take the form of market risks, interest rate changes and inflation. Unsystematic risk is defined as the risk that can be avoided by diversifying investment instruments. These risks include business risk, liquidity risk and litigation risk.
Here's what you need to know before you invest. Make sure you know the correct types, risks and ways of investing to achieve our financial goals.
