Understanding financial investments and what they offer is important for securing your financial quality of life and retirement. Whether you are looking for a way to grow your earnings, or simply preserve it with a secured fixed income, financial investments can supply your needs.
To assure your money is safe, you can build your investment in a savings account or Certificate of Deposit (CD). In addition, there are many options available within several diverse markets. The financial industry accommodates a wide range of people being involved in investing; from professionals to those who simply use investing as a savings plan.
In the United States (US), many people have the opportunity to participate in a 401(k) with their place of employment. These vehicles are retirement investments that are usually a joint contribution between you and your employer. Individual Retirement Accounts (IRAs) and Simplified Employee Plans (SEPs) and Self Employed Pension Individual Retirement Plans (SEP IRAs) are also available.
Most retirement investment plans have tax advantages and are not taxable until the time of retirement. There are penalties if these plans are redeemed before retirement. Most of these programs will use some form of mutual fund or index fund.
For people wanting to invest as a form of savings and growth, a diversified portfolio is recommended. For those who do not have the time to commit to learning about all the options available; financial advisors, brokers and planners are available to help assure that your investment strategy is appropriate for your age and risk level. Most will recommend some combination of stocks, bonds and real estate.
Stocks are a way of buying an interest in a company. By becoming a shareholder, you are eligible to vote on major issues. Regular or periodic dividend payouts are offered by many companies. Bonds are issues of debt offered by a corporation or government entity. Bonds are issued for advancement, improvement and maintenance ability. They are rated and most are insured. These issuances pay interest during the year or are purchased at a discount (zero coupons). Both are redeemed at maturity for full value. Both stocks and bonds can be purchased in the form of mutual funds.
The real estate market can be invested in by purchasing a housing property and renting it out, purchasing a “fixer upper” and living in it while you renovate the property and then selling it at a profit. You can also consider your home a real estate investment by living in it for several years until the value increases. Purchasing raw land and holding it until the area increases in value is simple with few concerns. Another option is to purchase Real Estate Investment Trusts (REITs). These are comparable to mutual funds except they are composites of real estate investments that are managed for you. They usually have regular dividend payouts as well.
Younger people have the advantage of putting a larger percentage of their investment into growth vehicles with higher risk levels. These instruments have the potential for large gains over time. Because they will be investing for several decades, they will have longer to balance out any losses that might occur. Consequently, they have the opportunity to grow their portfolio above inflation while making significant gains.
People closer to retirement age will be interested in positioning themselves with more stable and secure investments that pay dividends and interest on a regular basis. They are usually on a fixed income so these additional dividend and interest payouts can be advantageous. Corporate bonds usually pay higher interest than government bonds because they are taxable and carry a higher risk. Government tax exempt bonds will be best for those who simply want a fixed income that will preserve their wealth.
In addition to stocks, bonds and real estate, the commodities market is another option for financial investments. These markets deal in agricultural products, such as crops and livestock, as well as precious metals and oil. For the casual investor, commodities require a significant amount of time and research to be successful. It is recommended that a reliable broker and expert in this field be your advisor.
Other financial investments that should be considered are in the worldwide markets. Emerging and established markets exist in most countries. It is always best to invest in these options through a mutual fund or a reliable broker. There are also tax consequences when earning dividends in foreign countries and it is best to have a brokerage house supply that information for your tax records.