Get to know the Types of Investment and How to Invest for Beginners.
Get to know the Types of Investment and How to Invest for Beginners ! Before we further discuss the types of investments and how to invest, please note that investing is placing funds in one or more types of assets for a certain period, aiming to earn income or increase value. In simple terms, investment is one of the tools to realize our financial goals.
Everyone's financial goals are different. For example, a 25-year-old has different plans and goals than a 50-year-old.
Based on the purpose, investments are divided into long-term, medium-term, and short-term investments. Different timeframes, of course, different investment strategies and instruments.
Types of Investment Based on Purpose
Short Term Investment
Short-term investments last between less than one year to three years.For example, a 25-year-old youth intends to get married in three years. So he needs fresh funds to organize a costly wedding.
Given this need, the youth are advised to invest in low-risk instruments because they have stable fluctuations in value and high liquidity, so they are easily converted into cash and can generate steady income. Some suggested instruments for him are deposits, money market mutual funds, or short-term government bonds.
Can this young man invest in stocks for this financial purpose? You can, but of course, it's not recommended. The reason is that stocks are instruments with high fluctuations in value in the short term. Buying stock is the same as buying a business, and business growth certainly cannot be assessed only in the short term.
Medium Term Investment
When someone has financial goals between 3 to 10 years, this can be called a medium-term investment.For example, in the next five years, Mr. Budi must enroll his son at a well-known university in Jakarta. So Mr. Budi needs a sizable fund to pay the entrance fee and the first semester.
Given that his funding needs are more than five years, Mr. Budi can choose instruments with a slightly higher risk than deposits, money market mutual funds, or government bonds, hoping to obtain higher yields.
The instruments in question are fixed-income mutual funds (bonds), private bonds, and mixed mutual funds.
Long Term Investment
When the investment goal is over ten years, this investment is included in the long-term investment category.These investment objectives can include children's education costs, costs of holding children's weddings, buying assets for posterity, and retirement funds.
The longer the investment period, the more flexible a person choosing the instrument. They can choose instruments with low, moderate, and high risk or instruments that cannot be converted quickly.
Some instruments that can be chosen for long-term investment include precious metals, stock mutual funds, stocks, and property.
How To Invest
Investing is not difficult, considering that information about investment instruments or market research is very easy to obtain in today's digital era. However, investment certainly cannot be done haphazardly.Here is a good way to invest to realize our financial goals.
Make Sure We Are Financially Healthy
Before investing, ensure you have an ideal emergency fund and financial protection by having health insurance or insurance.Planning finances for the future is very important. But never underestimate the things of concern and priority in the present.
With an ideal emergency fund, we will be able to deal with the risk of loss of income due to layoffs or economic uncertainty. Without health protection, we can also lose quite a lot of money when seeking treatment.
Set Goals First
Know the financial goals to be achieved in various periods. Call it for the short-term, medium-term, and long-term. Without clear goals, the investment process will be immeasurable.After setting goals, also determine the funding needs to realize them. We can start the investment process after understanding the need for funds.
Get to know the Risk Profile.
Each investment instrument has different investment characteristics, and each investor has a different risk profile. The risk profile depends on a person's ability and willingness to tolerate investment risk.Conservative investors tend to avoid instruments with high volatility, and aggressive investors are more willing to take risks because they want high returns.
The risk profile can, of course, change when one's understanding of investing begins to increase. An increased understanding of investing will increase the ability to tolerate risk.
Recognize Systematic and Non-Systematic Investment Risks
If the risk profile has a benchmark in the form of the investor's psychological condition, there is also an investment risk that investors cannot escape.In investing, there are two types of risk, namely systematic and non-systematic. Systematic is a completely unavoidable and diversifying risk and attacks all kinds of instruments. These risks can be in the form of market risk, changes in interest rates, and inflation. Meanwhile, the non-systemic risk is stated as the risk that can still be avoided by diversifying investment instruments. These risks include business risk, liquidity risk, and lawsuit risk.
These are the things you should know before investing. Make sure you know the types, risks, and how to invest properly to achieve your financial goals.