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
by fastsong
Get to know the Types of Investment and How to Invest for Beginners
Before we discuss more about the types of investments and how to invest, please note that investing is an activity of placing funds in one or more types of assets for a certain period, with the aim of earning income or increasing value. In simple terms, investment is one of the tools to realize our financial goals.
Basically, everyone's financial goals are different. For example, a 25 year old person certainly has different plans and goals than a 50 year old person.
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
1. 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 wedding that is not cheap.
Given this need, the youth are advised to invest in low-risk instruments in the sense that they have stable fluctuations in value, high liquidity so that they are easily converted into cash, and can generate a steady income. Some of the 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 that have 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.
2. Medium Term Investment
When someone has financial goals between 3 to 10 years, then 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, in the hope of obtaining higher yields.
The instruments in question are fixed income mutual funds (bonds), private bonds, mixed mutual funds.
3. Long Term Investment
When the investment goal is over 10 years, this investment is included in the long-term investment category.
These investment objectives can be in the form of children's education costs, costs of organizing children's weddings, buying assets for posterity, and retirement funds.
The longer the investment period, the more flexible a person chooses the instrument. They can choose instruments with low, moderate, high risk, or instruments that cannot be converted quickly.
Some of the 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 in today's digital era, information about investment instruments or market research is very easy to obtain. However, investment certainly cannot be done haphazardly.
Here is a good way to invest, in order to realize our financial goals.
1. Make Sure We Are Financially Healthy
Before investing, make sure you have an ideal emergency fund and have financial protection by having health insurance or insurance.
Planning finances for the future is very important. But never underestimate the things that are of concern and priority in the present.
Without an ideal emergency fund, we will have difficulty dealing 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 we have to seek treatment.
2. 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.
3. Get to know the Risk Profile
Each investment instrument has different investment characteristics, and each investor also 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 volatilityhigh, 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. Increased understanding of investing will increase the ability to tolerate risk.
4. 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 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 non-systemic risk is stated as 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 so that our financial goals can be achieved.
