Do you want to invest but have no idea where to begin?
Let’s understand the basics and what you need to know to start investing.
“Well done, good and faithful servant; you were faithful over a few things,
I will make you ruler over many things.”
Before we begin, remember…
Paying off debt and building an emergency fund
should come before investing.
Always Buy Mutual Funds
Here is why. A person can have an MBA from a prestigious university and be a very smart investor. They can then pick a company that is sure to succeed. They do their homework; understand their business model and have gone over the financial statements with a fine toothcomb. They can’t lose! So said person invests a pile of money in the company. The day after the trade settles, the Wall Street Journal has a front-page article stating that the Chief Financial Officer of the company in which was just invested was falsifying the books and will spend the rest of his life in jail. That is justice for them but guess what? The company’s stock just tanked and took the investor’s money with it!
You may say, “Yes, but couldn’t this happen to a company managing a mutual fund?” The answer is yes, however, remember, when you invest in a mutual fund you are investing in a piece of every company held in the mutual fund. The fund manager could turn out to be crooked, or an investment house could have issues. Your money is still with the companies held in the fund. Admittedly, this doesn’t happen with every company, and you may be able to avoid this kind of disaster. The point is that it is very difficult to understand a company thoroughly enough to make the right decision and even if you can, that is too much risk. Instead, reduce your risk by investing in mutual funds. This spreads your risk and isolates you from the ebbs and flows of individual companies.