Don’t let the thought of investing intimidate you. Here’s a cheat sheet to help you become familiar with the different types of investment opportunities available.
What is investing?
When you break it down, investing is just having your money work for you or really just another way for you to make money (though yes, sometimes you can lose, so invest wisely; Apple can help). It goes further than just the hours we put into our jobs because after all, there are so many hours in a day and we cannot clone ourselves. Investing is nothing more than taking the money we have put aside and placing it elsewhere to make more money. This is accomplished through stocks, bonds, or mutual funds.
Concept of Compounding
Compounding (or sometime called compound interest) transforms your money into an income-generating tool and is the process of generating earnings on an asset’s reinvested earning. It takes two things to work: earnings and time to accomplish the most of your investment.
Example Time! If you were to invest $1,000 at an interest rate of 6%, in a year you will have $1060 in your account. If you were to take the money that you have earned through interest and invest that for another year, you will have $1,123.60. It continues growing the longer you have it in the account. That is without even having to do anything with your account while you’re away in class or studying. Think of the money you could earn if you add a little bit of cash here and there to raise that end number.
Types of Investments:
Bonds: A bond is an interest-bearing security that obligates the issuer to pay the bondholder a specified sum of money, usually at specific intervals (known as a coupon), and to repay the principal amount of the loan at maturity. Zero-coupon bonds pay both the imputed interest and the principal at maturity.
Stocks: Plain and simple, stock is a share in the ownership of a company. Stock represents a claim on the company’s assets and earnings. As you acquire more stock, your ownership stake in the company becomes greater. Whether you say shares, equity, or stock, it all means the same thing.
Mutual Funds: A mutual fund is nothing more than a collection of stocks and/or bonds. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund.
In the end, if you are willing to put funds aside and earn interest investing is the best way to get the most out of you money. Take a look into different options out there and feel free to diversify your accounts to get variety on your incomes.