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How to Invest Money Wisely: Our Beginner’s Guide to Investing
Not sure how to invest your cash in the stock market? Read on for our top tips.
Do you want to learn how to invest money in the stock market bu don’t know where to begin? We’ve put together this guide for beginners to help you grow your hard-earned money, even when the market gets rough.В
How Do You Invest?
Who Can Invest?
We have this image in our heads of investors as looking either like the dude from the Monopoly game or like Gordon Gekko from Wall Street.
Once upon a time, that may have been true. After all, already-affluent men were the ones with the spare cash and time to devote to the stock market.
However, it’s no longer the case. Thanks to the internet, investing has been democratized and you can get started with only a few dollars.
Anyone — regardless of age, gender, or income — can start investing today.
Why You Should Invest Your Money
You have probably read that the Dow Jones crashed or that Wall Street is down the most it’s been since the Great Recession over fears of the coronavirus causing a standstill for major economies. You might think that now isn’t a good time to invest because you will lose all of your money.
Instead of thinking about how much value stocks are losing today, think about investing in the long-term. On average, the stock market has a return of 10%. That amount does vary by year and by the type of stock of you invest in, but if you diversify your investments and keep investing, you’re more likely to see a better return on your money then if you didn’t invest.
And thanks to compound interest you are more likely to earn more money the sooner you start investing.
Let’s say you’re 25 years old and you can pull together $5,000 per year to invest. That’s money you may have accumulated from holiday bonuses from your boss and birthday checks.
If you were to save $5,000 every year for 40 years, when you’re 65 and ready to retire, you’ll have just $200,000. But if you invest that money into something with a 7% annual return, you’ll have made $1,068,048. More than $1 million!
If you were to increase your monthly contributions, you’d see even more money when it’s time to retire. Although Millennials are perfectly poised to take full advantage of compounding, anyone can benefit.
ItвЂ™s important to keep in mind that investing comes with a risk, so make sure to only invest money that you know you wonвЂ™t need in a few months time. The stock market can be volatile day-to-day, but youвЂ™re more likely to make higher returns in the long run than if you donвЂ™t invest.
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When Is the Right Time to Start Investing?
With stock prices falling, now is a good time to get a great deal. If you buy at the market dip, you can make a lot of money when stocks go up again. And as history shows us, stock prices eventually go up after they crash.
How you invest and what you should be investing in may vary with age. For instance, if you’re 30 years old, you’ve got a few decades before you retire. You can play with long-term investments such as stocks that would be too risky for someone on the cusp of retirement. After all, stocks can lose their value quickly, but if you have 30 more years before you need that cash, you can afford to take that gamble.
If you’re closer to retirement age, you want to focus on maintaining what you’ve already got. Safer, steadier investments — especially where there are dividends involved — are a better choice for you.
What Is Your Investing Style?
Before you begin investing, you need to know how you want to invest. You can hire a hedge fund manager or get your feet wet by passively investing in index funds through a robo advisor.
Which statement do you agree with?
- вЂњI would prefer to have a professional manage my investments for me.вЂќ If you’d rather вЂњset it and forget it,вЂќ you’re going to be happiest using a robo advisor. They do all the heavy lifting for you! However, you might find the lack of control over what you invest in limiting. You can also use a service such as the Paladin Registry to locate a fiduciary investment advisor who’ll act in your best interest.
- вЂњI like to do the research and pick investments myself.вЂќ Do you prefer a hands-on approach? If you get a thrill out of research and having control over what’s in your portfolio, you’re a DIY kind of an investor. You’ll do best by finding the best stock broker , rolling up your sleeves and getting to work.
Once you have opened up a brokerage account or decided to invest with a wealth manager or robo advisor, itвЂ™s time to start investing! If you donвЂ™t have money ready to invest, you can start quickly saving money with a high yield savings account.В
Where Can You Invest Your Money?
Before you start investing your money, understand that there are different types of asset classes available. An вЂњasset classвЂќ is a group of similar types of investments. You can invest in one asset class or many. A mix of asset classes, or diversification, gives you a well-rounded portfolio that can weather ups and downs. For example, if real estate is going well but the stock market is in the red, your returns are likely to even out. The mix of asset classes in your portfolio is often called your asset allocation.
Here are the basic asset classes for investors:
- Equities: This is also known as stocks, or when you own shares in a company. Here’s our guide on how to invest in stocks.
- Fixed Income: Also known as debt. You lend money to a government or institution and will be paid interest in return. Examples include bonds and certificates of deposit.
- Real Estate: Here, you own physical property. Here’s our guide on how to invest in real estate.
- Commodities and Precious Metals: As with real estate, you own a physical thing вЂ” be it gold, oil or pork bellies. You can trade them, but thankfully, you rarely have to take possession of them. Read more about how to invest in commodities.
- Futures and Other Derivatives: You own trades (futures, options, etc.), the value of which depends on an underlying asset. It’s complicated, but you can read more here .
- Cash: Also including cash equivalents. You invest your money in an interest-paying savings account, for example.
But that’s not to say there aren’t some interesting alternatives out there. You can also invest in shares of, say, fine art on platforms like Masterworks .
Because you need to have a diversified portfolio, alternative investments are a good addition, although they have their own set of risks to consider.
Choose Your Investment Strategy
Before you start investing, you should think about what type of strategy you’d like to use. This step involves determining your financial goals вЂ” including what you’re saving and investing for, when that event will occur, and how much you’ll need.
There are many different financial strategies to choose from, from stocks and funds to real estate and peer-to-peer lending. Some strategies will require you to be actively engaged in investing, while others are more passive.
Not all investment strategies will work for all people. That’s why you need to consider your financial situation вЂ” both present and future вЂ” first.
Here’s a quick rundown of some of the most popular investment strategies:
- Buy-and-Hold Investing: You’re in it for the long run. This long-term strategy involves buying stocks now and holding them for years when they will hopefully be worth more.
- Growth Investing: Many of these plays are shorter-term than what you’ll get with buy and hold. With growth investing, you buy stocks whose earnings are expected to outpace the market as a whole. Read more about Growth and Value investing .
- Real Estate: Whether it’s buying shares in a crowdfunding project or fixing and flipping a house by yourself, real estate investing can be among the most lucrative and short-term investments out there. There’s also plenty of risks, however.
- Peer-to-Peer Lending: For our purposes, this involves using a platform such as Lending Club or Prosper. You invest in interest-bearing debt notes that aren’t without risk but do have enormous potential for investors.
We’ve created a guide with some good starting places for beginners. Take a look and ask yourself some questions before deciding what path you’ll follow on your investment journey.
How to Define Your Investment Budget
Budgeting may get a bad rap and maybe not everyone should have one . But in reality, having a budget can be extremely helpful when it comes to saving money to use for investing. When making your budget, be sure to include plenty of funds for investing.
Now, there are plenty of methods for setting up and maintaining a budget. It doesn’t have to be rocket science. You can use a spreadsheet and just paper and a pen. Or you can use one of the helpful online services that do the heavy lifting for you. Betterment and Personal Capital have free budgeting and personal finance software that we particularly like. They’re also robo advisors, so you can get started investing right away at the same time!
What are the best things to invest in Australia?
a wn d Jfw GI b Mxto y EyAr LnA R D e HvWh f HfQa i ecXrg n F i ixaZG t SoR i rl v eVC
I am far from a stock market kind of guy but two industries came to mind when I read this question.
The Chinese have taken to dairy products in the last few years and after the baby formula disaster they have invested in Australian dairy. So perhaps you could investigate that market.
The solar industry is the other, now that Abbott has gone the industry should pick up and with the progression of battery technology every household could be off the grid in the not too distant future.
One more I just thought of is the medical sector. It amazes me how often new medical breakthroughs are happ.
How to invest in gold in Australia
Compare gold dealers, gold stocks and online brokers to get the best deal on gold.
Last updated: 27 March 2020
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Gold has been seen as a reliable store of value since ancient times. Today, it’s commonly considered to be a stable investment that doesn’t experience the same volatility as stocks and other tradable assets, making it well worth considering if you’re looking for a way to protect your wealth.
But if you want to buy gold bullion or invest in gold through the stock market, how do you go about it? To find out, let’s take a closer look at how and where to buy gold in Australia.
What’s in this guide?
Choosing a type of gold asset to buy
When most people hear the term gold bullion, it immediately conjures up images of bank vaults stacked to the ceiling with chunky gold bars. In reality, gold bullion refers to gold that is at least 99.5% pure and has been transformed into bars or ingots or minted into coins. Bullion is the form in which gold is traded on commodities markets around the world.
If you want to gain exposure to gold, there are a few ways to go about it. You can physically buy and store gold, you can invest in gold prices or companies via the stock market or trade gold on the financial markets as contracts for difference (CFDs).
Compare online brokers that trade gold stocks, ETFs and CFDs
Investing in gold on the stock market
It’s possible to invest in gold through the stock market by profiting from gold prices rather than physically owning gold. Stock market investors can buy shares in companies that have gold exposure, such as gold miners, or they can buy units in a gold-themed exchange traded fund (ETF).
With this approach, you don’t actually buy any gold – rather you’re investing in the performance of the gold industry or the mining company. If you want to invest in gold via the stock market, you need a full-service broker or you can do so using an online trading platform. The table above offers a list of options to consider.
This approach allows you to invest in gold without having to go through the hassle of buying, storing and insuring it. However, because you don’t actually own any gold, it exposes you to all the usual risks that the stock market carries, such as market volatility, company bankruptcy and the possibility of losing your investment.
When you buy units in a gold-themed ETF, you’re tracking the price movements of the commodity itself or stocks in multiple companies with gold exposure – read our comprehensive ETF guide for information. Gold-themed ETFs listed on the Australian Stock Exchange include:
- VanEck Vectors Gold Miners ETF (ASX: GDX)
- BetaShares Global Gold Miners ETF – Currency Hedged (ASX: MNRS)
- ETFS Physical Gold (ASX: GOLD)
- Perth Mint Gold (ASX: PMGOLD)
- BetaShares Gold Bullion ETF – AU Hedged (ASX: QAU)
If you want to buy stocks in companies with gold exposure, there are dozens to choose from on the Australian Stock Exchange. Some of the most well-known are included in the table below.
ASX-listed gold stocks and ETFs
Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.
Invest in gold via CFDs
An alternative to buying gold stocks or units in an ETF is to speculate on price movements through CFD investing in the futures market. CFD investors seek to profit from bond price movements – whether up or down. That means that even if gold prices are falling, CFD investors can still make a profit. However, because CFDs can be highly risky and are complex derivative products, CFDs are better suited to advanced traders. You can read more about CFDs in our comprehensive guide.
Investing in physical gold
This is the traditional approach and involves buying gold as a physical asset and owning it yourself. It allows you to get your hands on a tangible asset and avoid the counterparty risks associated with exchange-traded funds.
If you decide to buy physical gold, you’ll then need to consider what form you’d like to acquire. You can buy gold bullion in bars or in coins. Bars are larger and therefore more expensive, but they are an effective option if you’re looking to make a sizeable investment. Gold coins are smaller and less valuable, so they can be a more convenient option when you need to liquidate some of your investment.
Gold bars generally range in size from 1/10oz (ounces) to 1kg, but there are bars of up to 500oz available. However, remember that precious metals use troy ounces and that one troy ounce equals 31.1 grams.
There are two types of gold bars: cast bars and minted bars. Cast bars are produced by pouring molten gold into an ingot mould, while minted gold bars are manufactured via a minting or stamping process. Cast bars are cheaper to produce, but minted bars look better and are generally easier to sell.
Mints around the world also produce gold bullion coins. Typically smaller than bars and ingots, they’re generally considered to be a more convenient option for many investors. Not only are they cheaper to buy, but they also make it easier to liquidate a small portion of your investment when you need cash. Coins contain between 1/10oz and 1oz of pure gold.
These coins also have a nominal monetary value and can be accepted as legal tender in the country where they’re made – examples include the Australian Kangaroo, the American Gold Eagle, the Canadian Maple Leaf and the UK’s Gold Sovereign.
Compare gold bullion dealers
Deciding where to buy gold
There are several options to consider when choosing where to buy gold, so make sure to consider the following factors before deciding where to buy:
- Location. There are several gold dealers around Australia, so the location of those dealers will influence your decision if you plan on buying gold in person.
- Online options. There are also many online dealers that allow you to conveniently buy gold bullion over the Internet. As well as specialist dealers, you can also buy gold through marketplaces such as eBay and even arrange purchases through precious metal forums. However, as is always the case when spending money online, you’ll need to make sure you know who you’re dealing with – do some research to find out whether the seller is reputable and trustworthy.
- How the gold was produced. You’ll also need to find out where the dealer gets their gold from. Is it refined and produced by an established and recognised manufacturer?
- Premiums and commissions. Read the fine print to find out what fees the dealer charges. Expect to pay a commission to the dealer, which is usually folded into the purchase price, as well as an assay fee to check the purity of the gold and to verify its authenticity, but shop around for the best value.
- Compare price to Australian gold price. Gold prices are commonly quoted in US dollars, so make sure you compare the price offered by a dealer with the current price of gold in Australian dollars.
- Delivery. Find out how and when the gold will be transported to you or to its place of storage. Is it insured if anything goes wrong during the delivery process?
Storing your gold
Once you’ve purchased your gold, you’ll also need to find a safe place to store it. There are several options to consider, including the following:
- Bullion dealers. Many gold dealers will also offer a storage service where you can keep your gold bars or coins for a fee, so ask about the storage options available when you make your purchase.
- Safety deposit boxes. You can rent a safety deposit box at a bank to securely store your gold bullion.
- Secure vault storage. For high-level security, you may want to research vault storage companies near you and the storage options they offer.
- At home. You can also choose to store your gold at home. This obviously may not be as secure as some other options, so you may want to get a home safe installed. You’ll also need to update your home and contents insurance to make sure your precious metal is covered by your policy.
Things to consider before buying gold
If you’re searching for ways to protect your wealth or diversify your investment portfolio, gold may be a practical solution. However, please be aware that just like any other type of investment, buying gold comes with certain risks.
Do your research to make sure you understand the risks involved in buying gold, including the costs of storage and security as well as the fact that the returns may not match those provided by other investments. This will help you make an informed decision about whether buying gold is the right choice for you.
In a nutshell
- Protect your wealth. Gold has long been seen as a reliable store of value that is largely unaffected by the factors that influence other investments. For example, when share prices plummet, the price of gold usually rises as investors look for somewhere “safe” to park their money.
- Diversify your portfolio. Gold’s “safe haven” status also makes it well worth considering if you’re looking to diversify your investment portfolio and protect your overall financial position during periods of market downturn.
- Easy to buy. There are many dealers who specialise in buying and selling gold, so getting your hands on this precious metal may be easier than you think.
- It’s a tangible asset. If global financial systems were to somehow collapse, such as what happened during the Great Depression, owning gold as a physical asset offers financial protection. Gold also can’t be destroyed by fire or water damage and won’t corrode over time.
- Liquid. Gold is also easy to convert to cash whenever you need to do so.
- Long-term returns may be lower. Gold is commonly seen as a steady investment, so it may not offer the same potential for big returns as other investments.
- There are fees to consider. You’ll need to factor additional costs such as dealer fees, delivery, storage, security and insurance into your calculations.
- Not as convenient as ETFs. ETFs offer a simple and cost-effective way to gain exposure to gold and may be a more convenient option than buying physical gold for many people.
- No ongoing income. Unlike owning property or shares, which can both provide an ongoing source of income in the form of rent and dividends respectively, gold doesn’t provide regular income.
Frequently asked questions
Do banks sell gold?
Some banks do sell gold to customers, but many do not. If you’re interested in buying from a bank, do some research to find out which banks offer this service.
Is it safe to buy gold online?
Yes, it is safe to buy gold online, provided you’re purchasing from a reputable gold dealer. Make sure you thoroughly research the legitimacy of any dealer by checking to see whether they’re accredited with any trade associations and by checking their reputation and how long they’ve been operating before deciding whether to buy.
What are other ways to make money from gold?
Aside from purchasing gold as a physical commodity, there are a couple of other ways you can potentially make money from gold. For example, it’s possible to invest in exchange-traded funds that track the price of gold or invest in gold mining companies. Of course, these options also come with a certain level of risk attached, and there’s no guarantee of making a profit.
Are there any taxes on gold bullion?
If you buy or sell gold in an investment form (gold of at least 99.5% purity), GST is not payable. However, if your gold bullion increases in value from the time you buy it to the time you sell it, capital gains tax may apply. Contact the ATO or your accountant for more details.
Tim Falk is a writer for Finder, writing across a diverse range of topics. Over the course of his 15-year writing career, Tim has reported on everything from travel and personal finance to pets and TV soap operas. When he’s not staring at his computer, you can usually find him exploring the great outdoors.
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The Easiest Way to Invest in Real Estate
Owning shares in a real estate investment trust (REIT) is one of the simplest ways to purchase real estate .
Real estate has “real” value that investors can touch, feel and understand. This tangible value, combined with the limited supply of high-quality real estate, makes REITs one of the most stable investment alternatives around.
Without REITs, an investor would have to invest large sums of money (often borrowed) to be able to buy properties. The investor would have to personally guarantee the loans and would be liable for whatever happened to the property.
With a REIT, the only risk is the amount invested.
REITs: The Basics
Most REITs own land or buildings and make money by renting these spaces to individuals or businesses. Some REITs also earn interest on real estate securities, such as mortgage bonds . Other REITs simply fund various real estate ventures.
Most investors buy REITs for their rich dividends. According to NAREIT (an industrty organization), the average diversified property REIT offers an annual dividend yield of 4% — more than doublethe average 2.0% yield paid out by members of the S&P 500 Index . That’s money in your pocket.
Even better, the cash usually keeps coming in regardless of whether a particular REIT’s share price goes up or down. That’s because to preserve their unique tax advantage, REITs are required by law to pay out 90% of their income as dividends to shareholders. In return, REITs are not subject to corporate income tax .
On the downside, since REITs don’t pay income taxes, their dividends are usually fully taxable, which means the dividends you receive will be taxed as ordinary income. As of this writing, most REIT dividends don’t qualify for the reduced dividend tax rate.
But even after the extra taxes, the yields most REITs pay are far higher than the taxable equivalent yield you’ll get from most other common stocks. Savvy investors can avoid these extra taxes entirely by holding REITs in a tax-advantaged account like a Roth IRA .
Buy The Stock, Not The Yield
While most people buy REITs for their rich dividend yields, investors who choose their stock based exclusively on its yield could be making a huge mistake. That’s because corporate dividend payments are by no means guaranteed.
Even though a company might be paying a healthy 10% dividend yield now, it may not be able to sustain such a rich payout if its business model isn’t solid. Since companies usually extract dividend cash from earnings , payouts could be slashed if profits are pinched. The most profitable stocks are those that generate total return through dividends and share price appreciation . So REITs with long track records of a steady dividend and share price growth are your best bet.
Investors may also want to look for companies that offer a dividend reinvestment plan (DRIP). This allows you to reinvest dividend payments to buy more shares without incurring transaction fees.
But even if you can find a REIT that meets these criteria, one additional factor is paramount: It’s important to know exactly what the REIT owns.
Property Type Is Key
Many REITs specialize in a property type, such as offices, apartments, warehouses, regional malls, shopping centers, hotels or healthcare centers. Others own a mix of retail, industrial and office property. A few others invest in specialty properties, such as movie theatres.
To get a feel for how a REIT makes money, you should always pay close attention to the type of property each REIT owns.
Each real estate sector is affected by different economic factors. If the job market is booming, for instance, then office REITs could be attractive because more people are working and more space is needed to accommodate them. If consumer spending is on the decline, then a shopping center REIT might be headed for challenging times as retailers feel the pinch.
Property type can also tell you how predictable a stock’s income stream might be. Healthcare property REITs, for example, typically require tenants to sign long-term leases. As such, they will usually generate more predictable income than apartment REITs, which tend to lease for shorter periods of time. Knowing the quality and diversity of the REIT’s tenants will also give you a sense of the reliability of its income.
Larger, diversified or geographically dispersed REITs are less exposed to regional weakness and major economic cycles. These REITs tend to be more stable over the long haul. On the other hand, smaller, more specialized REITs often provide the greatest growth potential.
Action To Take
Even after you know what to look for, finding the best REIT for your money and with the greatest potential for long-term returns can be tricky. Pay close attention not just to each firm’s dividend yield, but also to its property portfolio, its growth prospects, and its valuation level relative to peers for those with the best profit potential.
In the meantime, if want to know our absolute favorite high-yield picks, including some of the best REIT’s the market has to offer, then check out our latest report right here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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