How to invest for beginners

Are you ready to start investing but have no idea what you should put your money into? There are countless options available to you today, including some you’re likely already familiar with, like cryptocurrencies, stocks, and shares — as well as others you may not have stumbled across before, such as mutual funds and real estate investment trusts.

In this AAG Academy guide, we’ll look at the wide range of investment options that are suitable for anyone looking to put their spare cash to work. So, whether you’re interested in buying Bitcoin, want a share of your favorite public company, or you’re hoping to one day become a real estate mogul, you’ll find an opportunity that works for you.

We will also cover some other helpful topics, including basic and advanced investment instruments, how to establish a risk profile, investment strategies, and more.

Investment types

Before you start investing your spare cash, it is important that you are aware of all the options available to you. Buying up the hottest cryptocurrencies and NFTs may seem exciting, but depending on your strategy and goals, there could be more suitable choices. Here are eight of the most popular investment types available today:

Stocks
Stocks, which are sometimes referred to as equities or equity securities, represent an ownership stake in a company. There are two common ways to profit from stocks, and those are dividend payments, which companies sometimes distribute to shareholders when they are profitable, and capital gains. Capital gains are profits earned on a stock when it is sold for more that it was bought for.

Bonds
Bonds, which are issued by a corporation, government, federal agency, or other organization, are one of the most common types of debt security. Debt securities represent borrowed money that must be repaid, and they can include corporate bonds and notes, certificates of deposit, and more issues by an individual, company, or government. Holders of debt securities are entitled to repayment of the debt, plus regular interest payments.

Mutual funds
Mutual funds are pools of money from multiple investors that are managed by an investment firm, bank, or other financial organization. The pools are invested across a portfolio of stocks, bonds, and other securities based on specific categories and goals. Mutual funds are managed by the organization that creates them, so investors themselves don’t have to worry about actively managing the portfolio — all they have to do is put their money in.

Options
Options are contracts that give investors the opportunity to earn a profit when the value of certain assets, such as stocks or currencies, changes. They are a type of derivative because their value is based on the underlying security, and they are also one of the more complex investment methods. Options give investors the right to buy or sell an underlying asset at a fixed price within a specific time period.

Futures and commodities
Commodities are basic goods that you may not typically think of as investment options, such as wheat, rice, and even cattle. Investing in commodities may involve obtaining physical goods, or it may involve acquiring a futures contract, which is an agreement to buy or sell a particular good at a future date for a fixed price and quantity.#

Exchange traded funds and products (ETFs and ETPs)
Exchange traded products (ETPs), which include exchange traded funds (ETFs) and other types of products, are securities that are listed on an exchange and can be bought and sold throughout the trading day, much like stocks. What makes ETPs different is that they track the performance of an underlying asset, such as gold. ETFs are essentially a combination of products that can include stocks, bonds, and more.

Real estate
Real estate investment is pretty self-explanatory; this involves putting money into properties like houses and apartments, and commercial buildings like offices and retail stores. Investors may acquire those properties outright themselves, or team up to pool their funds in real estate investment trusts (REITs). You can learn more about REITs below.

Digital assets
Digital assets, as you might expect, include cryptocurrencies like Bitcoin and Ethereum, and NFTs. They may involve acquiring those assets through common means, like buying them from an exchange, or it may involve participating in coin and token offerings issued by project creators to raise money during the early days of the project’s development.

Financial instruments and asset classes

In addition to knowing the investment options available to you, you may also be interested in the various investment instruments. There are two key types to be aware of, and those are:

Cash instruments
Cash instruments include anything with a value that is directly influenced by the condition of the market, such as stocks and cryptocurrencies. They can also include deposits and loans agreed upon by borrowers and lenders.

Derivative instruments
Derivatives are a unique form of security because their value is based on an underlying asset. Derivatives often derive their value from things like stocks, gas, gold, and oil.

Both types of financial instruments can also be categorized into different asset classes, depending on whether they are debt-based or equity-based.

Investment options through digital platforms

If you’re looking for the most accessible investment options, these will be the ones that are available through digital platforms that you can access almost anywhere, on almost any device, as long as you have an internet connection. The right platform for you usually depends on the investment method you have chosen, since no platform offers every financial product.

It will also depend on where you live, since many exchanges, banks, and other financial organizations operate within a limited number of markets. With that being the case, it is difficult to recommend one or even a group of digital platforms that will be right for everyone. We recommend researching local services once you have chosen your investment method.

Some popular platforms that offer various investment options — including stocks, bonds, mutual funds and more — and operate in a range of markets include Fidelity Investments, Interactive Brokers, and Vanguard. Centralized cryptocurrencies that operate internationally include Binance, Coinbase, Crypto.com, and Gemini. All decentralized exchanges operate globally.

Risk profiling

An important part of the investment process is risk profiling, which should be carried out before you start putting your hard-earned money into anything. A risk profile is an evaluation of your ability and willingness to take risks based upon your financial situation. It can help you determine how much money you should invest and where you should invest it.

Your ability to take risks is evaluated by reviewing your assets and liabilities. A person with few assets and lots of liabilities won’t be able to take a lot of risk, regardless of whether or not they would like to. It simply isn’t feasible. A person with plenty of assets and few liabilities can take a lot of risk, however, whether they choose to do so comes down to their willingness.

Some particularly careful investors, even those who can afford to take big risks if they want to, prefer to minimize the possibility that they could lose capital by opting for safer investing options. Both ability and willingness are important factors when considering your own risk profile. Start by assessing your ability first, then decide if you want to take big risks or not.

One of the most effective ways to establish your ability to take risks is with a profile questionnaire. You’ll find plenty of these online — like those from Royal London and Standard Life — which will ask you a series of questions about your current situation and your attitude toward risk. Your answers are converted into scores which help build your profile.

For instance, Royal London’s questionnaire maps your scores to one of seven risk categories that cover the range of risk profiles, from very cautious to very adventurous. This will help you establish not only what kind of investor you might want to be, but also what kind of investor you should be based on your current financial situation.

Investment strategies

After completing your risk profile, you can now decide what your investment strategy will look like based on the results. Are you better suited to what are generally considered to be safer investment options, such as stocks and mutual funds? Or do you have the ability and willingness to opt for riskier methods that have the potential to bring in larger returns?

The AAG Academy offers an excellent guide on putting together an investment strategy for those who would like to know more about the planning process. It also includes some examples of common investment strategies that many investors, particularly those who are just starting out for the first time, will find incredibly useful.

How to invest in Bitcoin

If you’re new to cryptocurrency investing and you want to buy Bitcoin, you’re in luck. Bitcoin is not only the most popular and most valuable digital currency in the world, but it is also one of the easiest to acquire. Unlike a large percentage of cryptocurrency coins and tokens, BTC is offered by almost every brokerage and exchange — including centralized exchanges.

That means that, in many countries, you can buy BTC using a regular debit card. You don’t even need to set up a digital wallet beforehand, since centralized exchanges will supply you with one when you create an account. If you want to, you can then move your BTC to a decentralized wallet so that it can be used with decentralized apps (DApps).

Once you’re ready to buy BTC, here are the four steps you can follow:

1. Choose a brokerage or exchange to buy from
2. Add a payment option to your account
3. Place an order for your BTC
4. Keep your coins safe — see our guide on storing Bitcoin for more information

It is also possible to acquire Bitcoin from decentralized exchanges and swapping services such as PancakeSwap, SushiSwap, and Uniswap. However, you’ll need a decentralized wallet and another cryptocurrency of some kind to begin with, so it is not the most seamless solution if you’re a newcomer to the cryptocurrency industry.

If you’re investing in Bitcoin rather than just trading it, you’ll want to hold onto your coins once you’ve acquired them. While it may seem appealing to take a quick profit every time Bitcoin enjoys a slight price increase, history tells us that the longer you hold on, the more you stand to make. Bitcoin is volatile, just like any other cryptocurrency, but its value tends to bounce back eventually — and could even exceed its previous high — after a slump.

You might be interested in: What is Bitcoin?

How to invest in the Metaverse

If you’re interested in investing in the Metaverse, you should bear in mind that like much of the web3 industry, the Metaverse is still in its infancy. While its growth is promising and we’re expecting big things from it in the future, no one can predict exactly how things are going to turn out, so, any investments you make in the Metaverse should be speculative for now.

The good news is that there are a wide range of investment options under the Metaverse umbrella. For instance, you may choose to invest inside the Metaverse itself on things like virtual real estate, fashion, NFTs, and other assets. Or you may choose to invest in the cryptocurrencies that are linked to Metaverse projects, like Decentraland and The Sandbox.

Alternatively, you can choose a more traditional investment strategy and put your money into stocks and shares in Metaverse companies, such as Meta and Roblox, instead. And don’t forget that the likes of Google, Microsoft, NVIDIA, Sony, and Unity Software — among many others — are also heavily invested in future Metaverse technologies.

What are equity investments?

One of the most common forms of investment today is in equity, which, as we briefly touched on above, involves purchasing shares of a company. This can include public companies, such as Apple and Google, as well as private companies that offer shares to individual investors or investment firms. There are two ways in which equity investments can earn you a profit.

The first and most obvious is when your shares increase in value after you buy them. This means that when you decide to sell, you will receive more than you originally invested — and it can be a pretty significant difference if you’ve held on long enough. The other source of potential income from equity investments is capital dividends.

Dividends are payments that are distributed to shareholders out of a company’s profits. This may come in the form of cash, paid into a bank account, or it may come in the form of additional shares. It is up to the company itself, not its shareholders, to decide that.

What are mutual fund investments?

If you’re a little uncomfortable about taking complete control of your own investment portfolio, or you simply don’t know where to start, you may want to look at mutual funds instead. A mutual fund is when multiple investors combine their funds and invest them in various assets. This allows for portfolio diversification and reduces the risk of a single investment going badly.

What’s more, mutual funds give investors the opportunity to invest in companies that they may not be able to invest in alone. They are managed by a fund manager, who has the relevant experience and expertise, and who decides when and where to invest your money. So, all you have to worry about is how much you can afford to put in.

Types of mutual funds can include stocks, bonds, money market funds, REITs, and more. Mutual funds are available from brokers as well as banks.

What are REIT investments?

REITs are real estate investment trusts, which are an effective diversification option for those who typically invest in stocks and bonds. REITs allow investors to put their money into commercial property or mortgages on commercial property, for which they then receive dividend income as well as the opportunity to earn a profit from capital appreciation.

REITs are available as a direct investment option, as well as through mutual funds, and they are typically considered a lower risk option since property tends to be secure. They typically focus on certain property sectors, such as retail, hotels, resorts, and hospitals. Furthermore, REITs are required to pay out 90% of taxable income to shareholders, at least in the U.S. 

References

• Basics buying and investing bitcoin
• How-to-invest-in-metaverse
• What are financial security
• What are mutual funds
• 5 Types of REITs and how to invest in them
• Financial instrument
• Investment products