Yes, there are safe ways of investing money for beginners! With that said, the riskier the investment, the potential for a greater reward. However, many of those investments could actually mean you could lose more than your initial investment, costing you the money you originally invested, plus more. Therefore, go into it with both eyes opened wide, and if you can’t afford for that outcome do not invest in any of the riskier investments.
Before we talk about safe investments, let’s talk about one example of an extremely risky investment that I would not recommend to anyone new to investing. It’s referred to as a Shorting a Stock. So, what is Shorting a Stock? In short, you are borrowing stock from a broker, selling it, and hoping the stock will go down in price, not up, at some time the future, since at some point you will be required to return the number of shares to the broker. To most of us that does not make sense, and in some ways it doesn’t. Yes, you are hoping that the stock price will drop as far as possible, to include falling to zero per share. Since the price of a stock share can’t fall below zero per share, it limits the amount of profit you can make doing this. However, because there is no limit to how high the price of a stock can go, it doesn’t limit the amount of money you can lose, to include more than you initially invested. That of course is the extremely risky part of this type of investment.
Let’s use an example to try and make some sense of this. You believe that the stock share price of the XYZ Corporation will drop in the future based on public information that is beginning to circulate throughout the financial communities. Let’s say that you wanted to short sale 100 stock shares of the XYZ Corporation, that is currently selling at $10 per share. You borrow the 100 stock shares at $10 per share and sell them and receive $1,000 for those shares (minus any fees associated with selling the stock). If the price of that stock goes down to $8 per share in the future, you would be required to return those borrowed shares to the broker at a cost of $8 per share, totaling $800, meaning that you would make $200 (($1,000 (your profit from the initial sell of the borrowed shares) - $800 (your cost to buy the shares back so that you can return them to the broker) = $200)). If it dropped to $1 per share you would make $900 ($1,000 - $100 = $900). Sounds great until you see how much you can lose if the stock goes up in price. If the stock price goes up to $25 per share you would lose $1,500 ($1,000 - $2,500 = $-1,500). So, your initial profit was $1,000 for the sale of the borrowed shares, but you had to buy back the borrowed shares at $2,500 because the stock went up to $25 per share, leaving you a total loss of $1,500.
Some Safer Ways for Investing Money for Beginner!
Yes, the above example is how complicated investing can become. However, there are much safer ways to invest as a beginner. I am going to only cover one of them in this article, which I feel is probably the safest way.
Your Employer Retirement Plan or a 401(k)
Many employers today offer some type of retirement investment plan, often referred to as a 401(k), but not always. These types of retirement plan’s generally offer company matched funds, up to a certain amount. As an example, you join and agree to have $100 out of your paycheck per pay period placed into the company retirement plan. Some companies would match your investment and would add another $100, making it a total of a $200 investment per pay period. Then that investment fund is managed by a professional investment management company and makes money (hopefully) in additional to the monies put in by you and the company. This is generally one the safest ways to invest your money, especially if the company places an equal amount of your contribution.
The key to this type of investment is that you should try very hard to place at least as much as your company will match. Remember, everything they match means that you will be making 100% on your investment, plus any increase you make from the investments that the management company produces.
Typically, the investment management company invests the funds in the company retirement fund, or 401(k), into an Index Fund. Of course, not always. One of the most common examples of this would be the S&P 500 considered a market index. It consists of approximately five hundred of the biggest companies in the United States. An investment manager would place the funds into the S&P 500 Index Fund which in term mirrors their performance, by purchasing the stocks contained within the S&P 500.
Therefore, if your company’s retirement plan invests in the S&P 500 index fund, you will be rooting for the S&P 500 to go up daily. Don’t get depressed if the fund drops, which it will. The odds of it rising again are very good over time. Yes, there will be those times that the market will drop dramatically, like in 2008, but overall historically the markets have always come back. However, there is no guarantees when it comes to investing.
So, investing money for beginners can be very safe, or very risky depending on how fast you want to make money, or if you are in it for the long haul.
Thank you and may God bless you.