The Different Ways of Investing
Investing is not simply buying something and hoping it goes up in value. To invest simply means to put money into an investment with the hope of a return/profit in the near future. Simply put, to invest in stocks means you are buying an entity or an object with the intention of generating an income from that investment or the gain of your initial investment, which is the increase in value of that entity over a given period of time
So how does one determine what type of investment to put money in? First of all, analyze what your goals are for your investing. Are you looking to generate an income with your stocks and bonds? Or are you looking to trade a stock so you can have a vacation? There are so many ways to invest in an effort to generate an income.
If you are going to be investing in stocks and bonds, analyze the market conditions. How the price of that entity as represented by the price per share of that security is doing compared to the price per share of other common companies in the same category. Look at the dividends paid out as well as how that income is distributed amongst the owners. When analyzing the market conditions, it is important to look at a number of factors because market conditions can change rapidly from day to day. Some investors like to stick with a standard investment strategy of low risk with high interest rates.
Some investors also like to use market diversification which means putting their money into different types of investments including both stocks and bonds. Investors also use asset allocation, which means putting a particular portion of their assets into stocks and bonds and another portion into cash. An investor’s asset allocation strategy will depend upon what they see as being their risk tolerance. Some investors may only want to invest in equities if they felt that their cash flow from their investment plan could easily offset any losses. Many investors also like to have a good portion of their money tied up in fixed return instruments. These include such items as precious metals like gold, silver, platinum, and palladium and other commodities like oil or gas.
Long-term investors are those who regularly trade for five years or more. Those who do this type of investing usually prefer a longer time frame to analyze the market and make a more informed decision on when to buy and sell their stock holdings. The reason why long-term investors tend to be more risk adverse than short-termers is due to the fact that they invest their money in a longer time frame, generally over a year. There is also the possibility of short-term loses that are incurred when an investing technique goes bad and they lose money on that investment. That risk in addition to the higher potential for losses means that these investors prefer to stick with safer products like treasury bonds for their investing needs.
Finally, there are the stock investors. These are the folks that you see buying large chunks of marketable securities every single day. It is their job to make sure the market remains profitable and growing, so they are the ones you will see writing up big gains and losses on a daily basis. They are not out there buying marketable securities just for the heck of it but rather because the stocks they buy are worth more than they will ever need to make a profit and it gives them a sense of “what might be”.