Everyone has the desire to "get rich quick" without following a specific plan to become wealthy. It is vital to realize that the key to stable, true wealth building is the act of investing. It has been proven that consistently investing over time will eventually make anyone — especially young adults — millionaires.
As college students, we can begin investing by educating ourselves on the various types of investments by asking a business or economics professor about the stock market. Reading, getting different opinions and looking at recent trends is key to beginning the investing process. Be sure to work those extra hours and save at least $100 to start investing. Just remember that the best investments are always the ones that are easy to understand and explain.
Before we begin, we must go over a few important terms in investments. The first is what the term "investment" actually means. By definition, investment is "the action or process of investing [storing away] money for profit or material result." This monetary arrangement should not be touched nor withdrawn for a long-term period. We must also consider diversification, or the spreading around of investments. By diversifying your investments, you are able to lower your risk.
Investing at an early age isn't always easy, but the benefits gained are well worth the years of patience and saving up. Time is on our side because of our young ages. This means that with the ability for our investments to compound, or to grow each year, we can generate greater earnings than an investor who began the process much later in life.
Let's now compare and contrast the various types of investments to determine the right one for our needs.
1. Money Market Mutual Funds
Money market mutual funds are a typically low-risk mutual fund that allows for safe, short-term (usually 90 days or less) investing. These are great for students and any beginner to the world of investing.
2. Single Stocks
Stocks are equity instruments. Single stock investing is the act of investing in one particular stock only. This type of investing is extremely risky if the investor hasn't diversified their investments. As a result of purchasing stock, you now have a small piece of ownership within a company. As the company increases in value and pays its owner dividends, or a distribution of a company's earnings, you may end up with a high return. This is the benefit of investing in single stocks.
Bonds are essentially debt tools in which an issuer, such as a corporation or governmental agency, owes you loan money. An investor's return on the bond is the price fluctuation and the interest rate paid. Similar to single stocks, this type of investment is not as encouraged for beginner investors as few individuals are known to do well with single bond purchases.
4. Mutual Funds
Mutual funds are viewed as investment pools where investment companies offer investors a variety of options to manage funds. They are often used to generate a regular income or to preserve money. Since this type of investment offers a return as the value of the fund is increased, investors typically choose to purchase a share in rapidly growing, faster-paced companies.
5. Real Estate
Buying real estate such as homes or condominiums to rent out as investments is the least liquid consumer investment possible. Only consider this option when you have a significant amount of cash saved up before using this type of investment.
To recap, the key to becoming wealthy is to simply and stably invest long-term within a secure company that offers a high return on an individual's investments. With an interest rate with the ability to compound, along with being patient and starting to invest an an early age, more and more of us young adults are able to grow financially and establish a safe cushion of wealth.
Financial Advisor: Dave Ramsey
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