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Build Wealth Early: A Quick Guide to Understanding Investments

The only way to start making your money work for you is to get started with investing.


You might find it hard to believe, but young entrepreneurs are in the best position to start making investments. It’s never too early to start investing.

For many, the first word that comes to mind when they hear the word investment is stocks, however investing in the stock market is just one of the many ways that you can invest your money. The world of investing can seem a bit overwhelming at first, but once you start to research different types of investments you will find that some may work better than others depending on your financial picture and life goals.

First, there are three forms of investing that can get you on your way to building a profitable portfolio.

 

Ownership Investments

Ownership investments are generally what people consider when they start learning about investments. These are usually the most profitable and volatile forms of investments including, but not limited to:

 

  • Stocks

    This is when you purchase part of a company. You live and die with the company’s successes and failures. These can be extremely profitable, and they can also be risky. According to Nasdaq.com, “One of the biggest considerations for investors with a minimal amount of funds is not only what to invest in but also how to go about investing. Not long into your investment journey you may find yourself bombarded with minimum deposit restrictions, commissions and the need for diversification, among a myriad of other considerations.

  • Business

    Starting your own business is another form of ownership investment and maybe one of the most difficult types. Startups and small businesses require hours upon hours of research, testing, and hard work to become successful.

  • Real Estate

    This can be viewed from two angles. Some people invest in a house or condominium so that they can rent it to tenants to make a profit, while others purchase a home to live in. Living in a home is a type of investment, but a home is not necessarily bought with the expectation that it will appreciate in value.

  • Valuable Objects

    These are objects like signed sports jerseys, valuable paintings and other famous pieces of art. Sometimes these investments gain value over time, but it can also be expensive to upkeep these items.

 

Lending Investments

These work in a similar way to personal loans, except that you are the lender in this situation. You act as the bank when you make a lending investment, and there tends to be a bit of a lower risk with this type of investment. Two of the most common types of lending investments are:

 

  • Savings Accounts

    If you have a savings account open with your bank, then you have already made a form of lending investment. You loan your money to the bank so they can make payments out to people, and in return you receive interest on your money. The interest rate on a savings account is often so low that it is negligible.

  • Bonds

    Bonds are a reasonably safe investment. You are essentially lending money to a bank or a government so they can expand, and in return they pay you back after a set amount of years plus interest.

 

Cash Equivalents

Cash equivalents are as close as you can get to having cash on hand. While the return on money market funds are fairly small, usually 1-2%, the risks are also small. You can also usually write checks directly from your money market fund, which means your money is easily accessible

 

Many people will refer to other purchases as “investments”, like an education, but the truth is that this is not technically an investment. While an education does generally make people more productive, purchases like this are not an investment in the sense of a stock or bond. You have to receive a direct return for something to be considered a true investment. Turning a significant profit off an investment requires lots of research and hard work, but it can be done. The only way to start making your money work for you is to get started with investing.

 

This article has been edited and condensed.

Robert Cordray is a former business consultant and entrepreneur with over 20 years of experience and a wide variety of knowledge in multiple areas of the industry such as corporate leadership, employee engagement, workplace culture and entrepreneurship. Cordray earned a Bachelor of Business Administration (BBA) from the University of Chicago. Connect with @robertcordray on Twitter.

 

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