Moving Beyond Beginner Stock Investing: How to Invest with Confidence

The biggest reason beginners hesitate to invest is probably the constantly shifting market. But if you set some basic principles and understand the different types of assets, you may be able to earn a profit over the long term. The first thing to do is to learn the types of investment products and judge how risky each one is. For new investors, it may be a good idea to choose products that track the market, such as index funds and exchange-traded funds (ETFs).

Savings

Depositing cash in a bank is the most common way to invest, and also the simplest and easiest to understand. Investors deposit their money in a bank, earn interest on it, and have their funds securely protected.

However, the interest on savings often fails to keep up with the rate of inflation. There are also certificates of deposit (CDs), fairly liquid products that offer higher interest than a regular savings account. However, your money is locked up for a set period, and you pay a penalty if you withdraw it early.

Bonds

A bond is a product in which the investor lends money to a borrower. Bonds usually involve corporations or government bodies, and investors earn interest income in return for lending them their money.

Bond rates are basically determined by interest rates, and (in the case of the US) trading is active during periods of quantitative easing or when the Federal Reserve Board (FRB) and central banks raise interest rates.

Stocks

By buying a company's stock, investors can share in the company's successful growth. If the company grows successfully, you can enjoy a rising share price along with dividend income. Of course, in the opposite case, you could take a loss.

Investors who hold common stock have voting rights at shareholders' meetings. Holders of preferred stock have no voting rights, but they have priority over common shareholders when it comes to dividends.

Mutual Funds

A mutual fund is when more than one investor pools money together to buy securities. Mutual funds don't necessarily have to be defensive investments, since the portfolio manager invests the money in stocks, bonds, securities and so on. An individual can invest KRW 1,000,000 and have it spread across roughly 100 different stocks in the portfolio.

Mutual funds are sometimes designed around a basic market index such as the S&P 500 or the Dow Jones Industrial Average. There are also many actively managed mutual funds, where the portfolio manager keeps updating the holdings. However, mutual funds come with annual management fees as well as upfront fees.

Exchange-Traded Funds (ETFs)

An exchange-traded fund is an investment trust product that can be traded on the stock market, and it has become quite popular since it was introduced in the mid-1990s. ETFs are similar to mutual funds, with the difference that they trade on a stock exchange all day long. This means they reflect buying and selling activity just like stocks, and their value can change sharply during the trading day.

An ETF can be based on an index such as the S&P 500, or on a "basket" of stocks the ETF issuer chooses as its underlying. ETFs can cover markets such as emerging markets, commodities, biotechnology or agriculture. Because of this wide range, many investors prefer ETFs.

Other Investment Products

· Real Estate

Investors can buy commercial or residential property directly. Or they can buy shares of Real Estate Investment Trusts (REITs). These are similar to a kind of mutual fund in which investors pool their money to invest in real estate, and they are traded on stock exchanges just like stocks.

· Hedge Funds and Private Equity Funds

Hedge funds let you invest in a variety of assets with "alpha," designed to beat market returns. However, returns are not guaranteed, and the huge volatility can bring big gains or big losses. They generally require a substantial initial investment and assets of $1 million or more, and only accredited investors can participate.

· Commodities (Raw Materials)

Commodities are products that invest in tangible resources such as gold, silver, crude oil and agricultural goods.

How to Invest Well?

Experienced investors spread their portfolios across a variety of assets. If there is a best way to invest well, it's to start with simple investments and gradually expand your portfolio. In particular, looking into mutual funds or ETFs before trying individual stocks, real estate or alternative investments can be a good first step.

Most people are too busy to manage their portfolio every day, and they worry about it. So sticking with index funds that track the market is one option. Mutual fund columnist Steven Goldberg argues that individuals need only three index funds. First, one covering the overall US stock market. Second, one covering international markets as a whole. Third, one that tracks a bond index.

Wrapping Up

Studying is a must when it comes to investing. You should not invest in products you don't understand. "Consider" the advice of experienced investors, but be skeptical of information from unreliable sources. When you meet an investment professional, it may be better to see one who charges for their time rather than one who takes a commission on your investments. Above all, don't forget to spread your portfolio across a variety of assets.

https://www.investopedia.com/articles/basics/11/3-s-simple-investing.asp