« Learn about Investing
What is Investing?
· 5 minute read
The key to building wealth is successfully saving and investing your money. However, few people understand how to do it. In fact, most people are doing the opposite of what they need to do. To build wealth, one needs to master the art of investing, which includes saving and growing money. The process of investing is neither complicated nor difficult, but it requires discipline. Below you'll find some simple tips that can help you understand the basics of investing and how to do it successfully.
The most important strategy for building wealth is to save money. Money can't be invested if there is none for investment. To be successful in investing, you need to have some money in the first place.
How to save money
The best way to save money is to cut expenses. You might need to adjust your lifestyle in order to maximize your savings. This doesn't mean that you should stop doing things that you enjoy, but you need to be more conscious about how much money you spend on things that don't add value to your life or help further your financial position. You should avoid spending money on things that you don't need.
How much money should you save?
How much you should save depends on your financial goals and your time horizon. To build wealth, you need to have a long time horizon or a high savings rate. If you have a short time horizon or a low savings rate, you won't be able to save enough money to meet your financial goals unless they are very modest.
If you don't know how much to save, start putting aside 10% of your income. You can periodically adjust your savings rate in the future.
Is it better to save or invest?
There are benefits to both saving and investing. Saving money in a savings account or stablecoin will earn a lower interest rate, but will be safe from the risk of loss. Investing money in stocks, crypto, or other assets can have a higher return, but will be subject to market risks. A wise investor will invest some of their money and save some of their money.
Investing is the act of deploying your money to earn returns, i.e., get back more than what you put in. Investing is the opposite of saving, and it can be risky. When you invest money in a high-risk investment, you could receive a high return on investment (ROI) – or none at all if it goes wrong. You are more likely to earn a return when you invest money in a low-risk opportunity, but it won't be as high. To reduce or 'mitigate' risk, you should invest in diversified assets that have a low correlation to each other. In other words, don't put all your eggs in one basket.
There are many ways to invest your money. You can invest in stocks, real estate, crypto, options, and more. Investing doesn't have to be complicated. It can be as simple as buying stocks of companies that you know, like, and trust, or well known cryptocurrencies like Bitcoin, and holding them for the long term.
Investing in Crypto
Cryptocurrencies are digital assets that are designed to work as a medium of exchange. They use cryptography to secure transactions, control the creation of additional units, and verify the transfer of assets. Cryptocurrencies are a new trend, so people are still learning how to invest in them. Investing in crypto assets is still somewhat risky, but can be a rewarding process.
Cryptocurrencies can be bought on cryptocurrency exchanges. To get started, see our list of the best bitcoin exchanges.
Investing in Stocks
Stocks are another way to invest your money. Stocks are shares of a company, and when you buy stocks you own a part of that company. You can buy stocks by opening up a brokerage account and filling out a few forms. A popular brokerage account is Robinhood, which has no-fee trades on US stocks.
You will earn a return on your investments if the share price of the company you bought goes up. The stock market tends to go up in the long term, but it involves a lot of risk.
Check out our article on investing in stocks.
Investing in Real Estate
Real estate is another investment option. You can invest in real estate by buying a home, living in it, and waiting for the property value to go up. You could also buy a rental property and act as the landlord. There are many ways to invest in real estate, but it's a high-risk, high-reward venture.
Read more in our article on investing in real estate.
Investing in Other Asset Classes
Allocate your money to different asset classes to spread risk. The proportion of the various asset classes should be based on their risk and return characteristics of each. Start by investing according to your risk tolerance. Start investing in low-risk assets and then gradually invest in higher risk assets as you feel more comfortable.
To understand the different asset classes and develop a sound investment strategy, see our article on investing strategies.
How much should you invest?
The amount you should invest depends on your financial goals and your time horizon. The more you invest, the higher your returns could be. However, there are no guarantees. If you invest more than you can afford to lose, you run the risk of a severe financial setback and a lot of lost ground on your path to wealth.
To start investing, consider putting aside another 10% of your income. Saving a portion of your earnings will likely impact your lifestyle now, but picture your new and improved lifestyle when the investments pay off in the future.
Remember: don't invest more than you can afford to lose.
Risk tolerance is a crucial factor in determining the proper asset classes to invest in. The higher your risk tolerance, the more you can invest in riskier asset classes to earn higher returns. For example, if you have a low risk tolerance, you may want to invest in bonds or mutual funds, while if you have a higher risk tolerance, you may want to invest in crypto, stocks, and real estate.
How to Build Wealth
The secret to building wealth is living within your means, putting aside savings for big purchases, and making intelligent investments for a high return over the long term. The more you save & invest, the more wealth you'll ultimately be able to build.