Once you have set aside enough money to invest, then it’s time to explore the world of investments open to you. Many financial markets offer you leverage to increase your purchasing power; so all you need is enough money to get into the game. But beyond just picking an investment, you need to make sure that you diversify into different investments to hedge your risk.
Obviously, it’s difficult to pinpoint exactly what to invest in as there is a whole universe of asset classes that could help you build wealth, each one with its own unique rules and regulations, strategies and tactics, and best and worst practices.
So, by way of example, let’s just look at three types of popular investment vehicles to get a sense of this unique way of using your money to make money: currency, stock markets, and real estate.
1. Foreign Currency
You can buy and sell physical foreign currency through a currency exchange company like TreasuryVault. Registered with the US treasury department since 2011, it has built a reputation for helping its customers work with banknotes and precious metals from more than forty different countries. If, for example, you’re interested in buying and selling the Iraqi Dinar, they will help you with straight currency buybacks, secured currency buybacks or trade-in currency.
Another type of currency you can invest in is crypto-currency. This has been extremely popular with Bitcoin and similar (think Litecoin, Ethereum, or Ripple), but it also carries significant risks for the non-savvy investor.
2. The Stock market
The stock market, also known as the equity market, is a collective of people who buy and sell stocks. When you buy a stock, you are buying a small ownership in a business, and the more stocks you buy, the more of an ownership you have. A stock can be a security in a public stock exchange; it can also be just privately traded.
In order to realize how big the stock market is, it’s important to realize that we can be talking about owning hundreds, tens of thousands, hundreds of thousands of stocks, and millions of stocks for a single company which can result in millions or billions in value. For instance, Warren Buffett, the third richest man in the world in 2017, loves Coca-Cola. He owns 400,000,000 shares of it. This is worth a little over $16 billion. However, although this might sound like he pretty much owns the beverage company; this only translates to 9.4% stake.
The stock market has been one of the best investments for those looking to grow wealth over the long term.
3. Real Estate
Real estate is one of the oldest ways of building wealth. It goes back thousands of years. It used to be something that only the nobility owned. Interestingly enough, even in the 21st century, monarchs still own a vast amount of historic property. Queen Elizabeth, for example, owns about £13.1 billion.
Still, real estate is no longer exclusive to inherited wealth. Anyone, thanks to the Declaration of Independence, as well as other democratic ideals, affirms a person’s unalienable property rights. A property can be land and buildings, and it is also the natural resources—minerals, crops, water, etc—that comes with the property.
And don’t think that you have to be extremely wealthy to own real estate. You can get started investing in real estate for as little as $5,000.
Some Basic Investment Guidelines
So how do you build an investment portfolio? Here are three guidelines to follow:
1. Right Investments: Only invest in something you know about or could learn enough about to get good at buying low and selling high. Don’t just jump into something because it looks like it will provide a high return on investment. The less you know about your investment vehicle, the more likely you are to lose your money. For instance, don’t invest in gold because it promises to maintain or increase its value over the years; invest in it because you know a great deal about the pros and cons of the gold market.
2. Diversification: Keep your portfolio diversified as it will help you avoid losing everything should the market make a downturn.
3. Risk assessment: Just as you don’t want to live above your means, you don’t want to overinvest in something. The wealthier you get, the more willing banks are to lend you money. While this can, of course, means that you can scale up your business, it can also mean that you will end up paying more in interest if the investment has a poor return on investment. In other words, you’ll pay more for the investment than you earn from it.
Investing and Mindset
Finally, let’s briefly touch on the mindset necessary to be a successful investor. Although investments are largely about understanding how to interpret technical metrics and looking at the numbers, psychology plays a huge role in determining your success. When you’re dealing with large sums of money, say borrowing money from a broker to invest in forex, it’s easy to become the victim of fear or greed because all you have to do to enter a market is meet an initial margin requirement to build up your trade and control a large amount of money. So it’s important to be calm and even-minded about it and not approach investments with the unbridled enthusiasm.