The 2020 pandemic hit many companies hard, while other companies took it as a chance to grow, seemingly unaffected by the state of the world around them. NVIDIA (NASDAQ:NVDA) came out as one of those thriving businesses and achieved gains of 122% in 2020. The company’s graphics processing units (GPUs) were present and needed for trends that accelerated exponentially due to the pandemic, boost...
Everyone has a personal reason that leads him/her to save up a certain percentage of his/her earnings. It could be so they can give themselves the kind of independence they have always wanted, or so they could send their children to a quality school or prepare themselves for their future retirement.
The amount of potential reasons for saving money is grand and not limited to one per person. Right now, you could be thinking about how many of them are currently within your interests and suddenly realize how much preparation is required to fulfil them properly.
For these very reasons, it is of the utmost importance that you take full care of what you are investing your money in and making sure that said investment satisfies your specific needs.
Why you should invest
If you doubt whether investing is a reliable option, you shouldn’t even be worrying. Owning stocks has consistently been proving itself over the years to be the best way for any person to earn the most savings in the long term. Compared to any other money-making operation, it always outperforms.
Why is that?
Because being the owner of any company’s stock means owning a part of that same business, in return, anytime that said enterprise grows in size and profit, you are becoming the owner of more valuable stock. In some cases, you could even be earning an income just by being the stock owner.
Of course, as it is with many other business ventures, investments aren’t risk-free. Do not worry; that doesn’t in any way mean that investments are harmful, as there are many options you could be taking to protect yourself from them. But first, you need to understand what said risks are.
- Volatility: Stock prices tend to change over short periods of time. If you need to sell your stocks within a similar time frame, you could be at risk.
- Permanent losses: If, unfortunately, the business of your choice goes bankrupt, as a stockholder, you are among the last in line to be repaid, meaning you are most likely going to receive whatever money is left instead of full payment.
Now that you are familiar with the most like risks you could end up facing, here’s what you can do to avoid them:
You will first have to consider when you’ll need the revenue you’ll get from stocks you sell. It can be categorized into “needing-soon,” where protecting your capital is a priority, and “not-needed,” where you’ll prioritize growing your assets.
Regarding “needing soon,” let’s imagine that you are a couple of years close to retirement. You need the earnings from your stocks within two years. To avoid any loss involved with price fluctuations, prioritize the money you have already won. Why? Because waiting those two years to see if you can get them to become more valuable puts you at a higher risk of losing money. In other words, take the most advantage of any safe spot you are in regarding your current stock’s value.
On the other hand, regarding “not-needed,” let’s imagine the opposite. You are far away from retirement. The answer is, as you might have guessed it, doing nothing. If your primary reason to become an investor is still far ahead of you, you have an ample window of opportunity when it comes to waiting for your stocks to up in price. Even if you lose money, it is still possible for the prices to go up again with due time. You could even be winning more money you had already lost.
Another thing you could also do to avoid potential risk is to own stock from a diverse catalogue of enterprises. By not having all of your assets focused within one single venue, you minimize losses to just a few small investments while still winning a profit from the rest of them. Again, your earnings from your most successful investments could be greater than the losses from the others.
Our recommendation: investing in bonds
Let’s say you are close to your main goal, yet you are not ready to sell your stocks yet. You are at a safe spot regarding growth. What can you do?
Invest in bonds.
There are several kinds of bonds inside the world of investments, but, in summary, what they are is loans from your part to a given company or government.
How does making a loan help you? Because no matter what kind of situation comes to pass to your business of choice, you are making sure that a percentage of your profit (chosen by you) is safe, unaffected by that same occurrence, and even with a little more earnings due to interests.
What you’re getting from bond investing in return is a predictable and stable return of your investments.
Another recommendation: investing in real estate
As history has already previously shown, real estate has always been one of the easiest ways to get profit while still allowing you to protect yourself from potential recessions. Because of this, some consider it one of the safest and most stable forms of investing.
Publicly traded real estate investment trusts are probably the easiest way for you to get into the world of real estate investments since they are easily found on stock market exchanges. You could invest in communication sites, self-storage properties, apartments, among other options.
Or, you could also crowdfund your real estate project, as it has recently been made legal and an accessible option for anyone.
But, before compromising any choice, think deeply about the pros and cons of each side. For example, real estate investment trusts allow you to buy and sell shares more efficiently, while crowdfunded projects might limit your access to your capital until the full completion of the task at hand. However, if you are patient enough, the potential returns and income can be more significant than those of a real estate investment trust.
And finally: brokerage accounts
Sadly, it is not common for people to consider the tax implications of their investments; if left out of the equation, it could very easily prolong, or even harm, your journey towards your financial goals. That is why you should be very careful about where you invest your money.
Taxable brokerage accounts are an excellent aid that helps any other investment goal.
Finding the most suitable taxable brokerage account can take a considerable amount of time, so here are some examples that you might want to use in your business ventures.
- A 401(k) allows you to reduce your taxes today. Made for currently employed people looking to save for their retirement.
- Roth IRA gives you tax-free distributions in retirement. Made for already retired people.
- Coverdell ESA gives you more control over investment choices, allows you to withdrawal if the reason is education expense related, and will enable you to increase your contribution limits based on your income. Made for college savers.
In the end, everyone has different situations and goals. Yet, your best options will always be planning and researching to invest in different assets, the preferable time to sell them, and how much risk you are willing to take to make your investments reach the needed point.