The adage goes something like “the best time to start investing is now.” For some beginners, this can be laborious, considering the volumes of information on the best investment with guaranteed returns. Other beginners will think this is an easy way to make a quick buck and jump headfirst into the markets.
This post is for the amateur investor who is ready to make a strategic decision to protect their investment against unsustainable risk exposure, but free enough to pursue conservative capital gains opportunities and learn the ropes of the trade while doing so.
Apart from a theoretical understanding of how the financial markets work, it is imperative that a beginner have a realistic idea of the different strategies that investors employ in search of opportunities in the markets.
The following is a detailed explanation of the top five investment approaches suitable for beginners:
- ETFs
Exchange-traded funds (ETFs) offer a less rigorous opportunity to participate in the stock market. As a beginner, investing in ETFs is ideal because an ETF pools various assets, including particular stocks, commodities, and bonds, and the performance is compared to an index. ETFs allow you, as an investor, to trade multiple assets commonly as a single stock. ETF diversification allows beginners to access a broad portfolio of stocks and bonds that provide comfort and reduced risk. Consequently, the flexible nature of ETFs allows an investor to trade flexibly, with the option to buy and sell at any time during normal business hours.
- Investment funds
Mutual funds are ideal pooled investment vehicles for beginners due to their two main characteristics. First, a beginner can access the services of a professional trader on behalf of the fund manager despite the modest amount of capital, some as low as $25. Second, the investor is exposed to minimal risk because mutual funds, like ETFs, invest in a diverse portfolio of asset classes of stocks, commodities, and bonds across different markets and industries.
- individual actions
After a detailed analysis of an individual stock’s past performance and prevailing facts, individual stocks may offer a stable investment opportunity suitable for beginners. However, care must be taken to ensure that investing in a particular stock does not alter the risk tolerance level of your portfolio in the event of a negative turn of events. The markets are not always predictable.
- Certificate of deposit
Depositing money in a bank for a specified period with a fixed and guaranteed return on capital plus interest is a good investment opportunity for a beginner. The certificate of deposits is insured and therefore the principal plus interest is guaranteed to the investor at maturity. However, it is important to understand that access to this money is limited during the stated investment term and may incur fees or loss of interest upon withdrawal.
- High Yield Savings Account
This investment also involves saving for the sole purpose of earning capital interest gains over a specified period of time. However, unlike the certificate of deposit, the interest is not fixed and therefore the interest is based on prevailing market rates. However, the funds in this account are more liquid, therefore easily accessible.