There are some different investment options for beginners that can help you dip your toes in the investing pool without jumping into the deep end without a float.
Investing can be fun, rewarding, and lucrative. The problem with investing is that there are several different investment options that can get new investors into trouble quickly. It really can be like leaping off the high dive and hoping for the best, even though you don’t know how to swim.
Fortunately, you don’t have to know how to swim to enjoy the water. There are boats, floats, sprinklers, shallow pools, or a walk in the rain. It’s the same with investing – you don’t have to be an expert to start investing. You do, however, need to know how to stay out of trouble. Otherwise, your investing adventure could be financially disastrous, and that’s the last thing anybody wants.
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3 Different investment options to help you get on the path to investing success
If you’re new to investing, it’s easy to get overwhelmed with all the different investment options available to you. There are mutual funds, exchange-traded funds, stocks, bonds, call and put options, IPOs, IRAs, and on and on. Within those are conservative and aggressive investments, themed investments, dividend stocks, growth stocks, and the list goes on.
Let’s start by breaking this all down into the essential parts (a.k.a. the different investment options available to you). When you invest, you’re putting money into something with the hopes of getting more money back at some point in the future. Thanks to the many do-it-yourself investing tools, like T.D. Ameritrade or Robinhood, you can begin investing with minimal amounts of money. These three are some of the most common investment options.
1. Stocks. Stocks refer to shares in public companies, from big names like Apple (APPL) to companies you may not have heard of, like Sprout Social (SPT). Different aspects of these stocks make them more or less risky. Some may be dividend stocks, meaning they share a portion of profits with investors. Others, like many IPOs (initial public offerings), can be extremely risky. You can invest in any number of these individual stocks, which is how many investors build their portfolios.
2. Exchange-traded Funds. Exchange-traded funds, or ETFs, refer to a group of stocks that you can buy as a package. These ETFs may specialize in something like alternative energy, where each share of the ETF you buy might include a dozen or more stocks. Other ETFs may hold a wide variety of major stocks. Think of it like a mezze platter at your favorite Greek restaurant. You don’t have to buy separate plates of hummus and baba ganoush; you get a little bit of everything with the mezze platter.
3. Mutual Funds. Mutual funds are similar to ETFs, but most of them are actively managed and tend to come with higher management fees. Large mutual funds usually hold (almost) every stock in their benchmark index, matching both the holdings and the weightings of the index. In this way, mutual funds offer investors an organized method for diversifying their portfolios. They can give you exposure to well-known stocks that may be otherwise unaffordable, and they help you lower your overall risk.
Skip these investment options for now
Individual stocks, ETFs, and mutual funds aren’t your only options for investing. Some of the following different investment options can be attractive. Just beware. Even though it’s possible to make good money with these, there’s also a lot of potential to lose money faster than you can say “Beetlejuice” three times. Seriously. Come back to them once you have some experience and have a good idea of what your risk tolerance is.
1. Options Trading. Here at Cabot, we certainly aren’t opposed to options trading. In fact, we have three advisories, Cabot Options Trader, Cabot Options Trader Pro and Cabot Profit Booster, that specifically discuss options. But options can be more complex than buying and selling stocks.
2. Cryptocurrency. Yes, you can make a lot of money investing in cryptocurrencies like bitcoin. But bitcoin is purely decentralized and doesn’t have the backing of a sovereign authority, so it is subject to wild volatility.
3. Low-Priced Stocks. A low share price can be an attractive selling point to the uninitiated. That said, it’s important not to confuse a low share price with an attractive value.
4. Day Trading. Day trading isn’t so much an investment option as it is a style of investing. Still, even if you’re a seasoned investor, day trading is an entirely different animal; you’re not buying stocks for their long- or intermediate-term profit potential, you’re buying stocks that you think will rise that day. Under normal circumstances, predicting what stocks will do on a given day is like throwing darts with a blindfold on.
The best thing you can do as a new investor is start by reading all you can get your hands on about the stock market. And remember, you will make mistakes, but you’ll also make money.
What different investment options do you prefer as a new or experienced investor? Let us know in the comments.