Most people living in the United States and other economically successful countries don’t have to worry about the basic necessities in life. We have food and shelter and everything else that has been hard to come by during many times in the history of the world. The good news is that most of us have some kind of extra income beyond taking care of the necessities, and we can take advantage of this by investing in various ownership assets in order to increase our wealth over time.
However, this can be a difficult field to enter for someone who has not yet been exposed to the basics of investing. Here are three simple but important principles to keep in mind if you’re trying to get your feet wet in the world of investing.
1. You need to be a saver before you become an investor.
Let’s face it. Most of us are not already wealthy, and if you’re reading this article you probably do not have tens of thousands of dollars or more ready to invest in the stock market and real estate. If you do have this kind of cash, you probably saved this amount over years of hard work and did not simply receive this as an inheritance.
The bottom line for the vast majority of us is that saving is a prerequisite if we want to become an investor. You have to learn to live within your means so you can have something left over each month, and this amount can become the beginning of a sound investment plan.
2. Get to know ownership investments.
The three main types of ownership assets you can invest in are stocks, real estate, and owning your own small business. Each one of these has its pros and cons based on your ambitions, initial amount of capital, and your tolerance for risk. Small business and investing, for example, may have more potential to make a huge amount of money than simply investing in the stock market over the next five or 10 years. However, owning a small business requires sound business knowledge, lots of hard work and dedication, and a significant amount of capital to get started.
Also, small business may have the potential for high returns, but there is always a greater risk since most businesses will fail. You have to ask yourself how much risk you can tolerate, as a successful entrepreneur may go through numerous failed businesses before gaining the experience and insight needed to be successful.
3. Don’t expect unrealistic returns when investing in stocks and real estate.
Over the long term, you can reasonably expect to make about a 10% annual return while investing in the stock market and real estate. The odds are simply against you if you expect to make much higher returns. Also, your return may be quite different in any given year. For example, you may have done very poorly in 2008 or 2009 during the real estate decline and financial credit crisis. However, if you stayed in the market over the long term, you would have a good chance of regaining your losses and continuing to make that 10% annual return over the long term.
This is why you should plan to hold on to these kinds of investments for several years or even a decade at the very least.
Joshua is an avid researcher and enjoys writing about many topics, including health and fitness, real estate, business, and investing. Please visit his site for more information on a Coffee Pot Warmer at http://replacementcoffeepots.org today.