You may be interested in learning how to invest money online, but do you really understand what investing is? It’s referring to the process of purchasing assets whose value would increase over time. Those assets would provide returns in capital gains form or income payments. In a wider sense, investment is about spending money (or even time) to improve your life or others. In finance, though, investment is about buying real estate, securities, or others (with value) with the purpose of obtaining income or capital gain.
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How to Invest Money Online: Understanding the Concept of Investment
In short, investment is about buying the assets with low price and then selling it at high price. It’s known as the term capital gain, where you can enjoy investment return. When people learn about investment, they mostly want to learn about making money in return. When you buy something and sell it, it means that your investment gain in value. It’s called appreciation, in financial term. Here are some of the most common appreciation forms.
- A stock share can appreciate when the company is able to create a new product boosting sales, increasing the revenues, and increasing the stock’s value
- A corporate bond is able to appreciate when it pays around 6% of annual interest. But when the same company is issuing new bonds offering only 4% of interest, your bond would seem more appealing and desirable
- A commodity, like god, may appreciate because it’s another valuable alternative when currency loses the value
- Real estate (a condo or a home) can appreciate as the neighborhood becomes more desirable or when you have renovated it
Besides appreciation and capital gains, investment would work when you purchase and then hold the assets to generate income. For instance, many stocks provide dividends. So, rather than buying (and selling) the stocks, the (dividend) investors would hold on to their stocks so they can profit from the dividend income. Another example is when you buy a second house and rent it out. The income from the rent can be profitable for you as you make a smart investment and passive earning.
The same concept and idea also applies when you want to learn about how to invest money online. As we live in the modern era where technology rules, you can actually invest in stocks or bonds. People today even create cryptocurrency, blockchain technology, and metaverse where people can have their own digital investment. The concept is just the same; but cryptocurrency, metaverse, and blockchain technology brings it to a higher level where everything happens in digital format and manner.
Investments Basic Types
Before you learn about how to invest money online, you need to learn about the major asset classes that people are familiar about.
- Companies typically sell stocks so they can raise money for funding their business operations. When you buy the stocks, you have the partial ownership of the company. Some stocks provide dividends, which are basically small regular payments. Don’t always expect profits as stocks can also experience loss as well. But in the long run, buying stocks is a good option for investment.
- With bonds, investors basically become the bank. When companies need to add more capital, they borrow their investors’ money through issuing bonds, or debt. When you buy bonds, you are loaning money within a certain (fixed) time period. As a return of your loan, the company would pay you a fixed rate along with the money that you lend them. When compared to stocks, bonds are considered less risky. Bonds have guaranteed and fix rates, enabling them to become fixed-income investments. However, you should also choose wisely. Never invest with the company’s poor credit ratings because bigger chance that they would default on the payment.
- Most people know commodities are precious metals (such as gold), but they can be energy products or agricultural products. They are typically raw materials whose price depends on the demand on the market. For instance, if a hurricane affects wheat supply, its price may increase because of the scarcity.
- Real estate. Whether you buy a piece of land or a house or even a building, you are investing your money. For those who want to invest in real estate without really owning (or managing) the real estate, they may want to consider purchasing REIT (Real Estate Investment Trust) shares.
Besides these common investment types, you can also consider ETFs and mutual funds. As it was mentioned before, we have crypto and NFT (Non-Fungible Token) types of investment. However, these new digital investments may not be familiar for most people. Not to mention that you may need to consult the professionals. However, these new investment types would be perfect for how to invest money online as they are digital.
The Best Modern Investments
When you learn about how to invest money online, we are talking about modern investment. There are several options made available for customers like you.
- High Yield Savings Accounts
Do you know that your savings accounts can be a good investment for you? Your account pays interest for the cash balance. The high yield (saving) account can also give you tons of cash for your investment. Ask for your bank about this kind of account. In some banks, you may be able to get higher rate when compared to others. Moreover, if you need access to the fund, you can simply transfer the money to your main account or get it through the ATM.
However, it would be a good idea if you can have more than just one account – just to be on the safe side. For some people, one account is used for rainy days while another one is inaccessible, meaning that it’s completely used for saving and investing. But it’s completely up to you how you want to manage your account. Manage it the way you see it fit.
- (Short Term) Deposit Certificates
Also known as CD or Certificates of Deposit, this kind of investment is typically issued by the banks. They usually offer higher (interest) rates when compared to the savings account. For some people, the short term CD is considered a better option when they want rates to increase. It enables them to reinvest again at higher rates, especially when their CD matures.
CDs are a part of the modern way on how to invest money online. It’s considered safe because it is federally issued. Not to mention that they typically have maturity dates ranging from some weeks to some years. You can call it time deposits if you want to. But as it is a part of time deposit, you won’t be able to withdraw the money within that specific period, or you will have to pay penalty for your withdrawal. With CD, you get interest at regular intervals. When the CD matures, you will get your money back, plus the interest.
This kind of investment is perfect for retiree who doesn’t need direct (or immediate) income. It’s also perfect for those who are able to deposit (and lock) their money for a longer time. The risk for this investment is relatively small: when the interest rate falls. If you are interested in having this kind of investment, you’d better ask your bank. Or browse around for the most attractive offers from ONLY reputable financial institutions. Don’t fall into overly sweet words and exaggerating promises.
- Cryptocurrency
With the advent of blockchain technology, cryptocurrency is created. It is a type of digital money or digital electronic currency that is designed as a mean of exchange. In the crypto world, real money (like dollar, yen, or euro) is known as fiat money. Bitcoin is the most popular cryptocurrency, but there are various different platforms out there, and each platform has their own crypto money.
Cryptocurrency is a part of decentralized system, meaning that there is no controlling power or official ruler that monitors or observes everything. This kind of money isn’t backed by FDIC or any government or company. If you are looking for an investment that can generate a lot of money right away, cryptocurrency would be the best option. However, you should also remember that it is one of the riskier types of investment. It’s possible to have millions in a minute and then nothing in the next. But cryptocurrency can be a good way in how to invest money online, especially if you want to learn more about digital currency and digital investment.
Tips in Managing Safe Investment
Whether you want to learn about how to invest money online or the regular one, you need to keep some of these things to have safe investment.
- Use spare money. Never invest with your money that you use to buy grocery or gas or utilities. Use your spare money to invest. This is where saving can help you save a lot, especially when it comes to your financial safety and stability.
- Diverse your investment. Don’t invest in one type only. Try to invest in various different forms or types. For instance, you may invest money in stocks, bonds, crypto, and real estate, where each of them has their own proportions.
- Separate your investment and your saving. If you can set aside some money, it’s better if you can differentiate them.
- Choose reliable and trusted services to help you manage your investment. Whether it’s a brokerage, trader, or others, make sure that they have good reputation. It would be even better if they are recommended by people that you trust within your circle.
Here’s an example of a good and smart investment, directly shown by a friend of mine. He would set aside a certain sum of money on monthly basis every time he gets paid. That extra money is then divided into two: for saving and investment. Let’s say that he manages to set aside $400 each month. He would use the $250 for savings, and the rest ($150) for investment. For him, the $150 is already gone. Poof! He wouldn’t think of it after he uses it to buy bonds, or stocks, or for CD. In this manner, he wouldn’t be overly upset when his investment fails. The dividend he gets from bonds and stocks goes straight into his saving. If he has extra money, he would put it into saving or gold. He also tries crypto, but only puts a little – just to be safe. He is thinking about buying a property which he would rent. He is still trying to save for the down payment. For this property saving, he has another separate saving. So, yes, he has a lot of savings and also investments.
Final Words
No matter what kind of investment you are interested in, make sure that you can do it safely. Diverse your investment. Just like saving, you don’t have to do it immediately. Start slowly. Today’s era has made it possible to have online investment, but don’t let your guards down. Some investments may be promising, but each of them has their own risks. Now that you know a bit about how to invest money online, when are you going to start?
