With the sting of the global recession still fresh, people have begun to look for different ways to use their money. Investing has always been a great way to supplement your income, given the right mindset and some due diligence. The opportunity to make a living off your investment portfolio is worth considering, especially since you can now do it easily online, and therefore from the comfort of your own home. Here are some tips and information to help navigate through the risks and thrills of living through investments.
What to invest in
When people say investments, they usually mean one of three things:
Stock A piece of ownership into a corporation that represents a claim on part of that corporation’s assets and earnings (Historical rate of return at 7-10%)
Bond An investor loans money to an entity at a fixed interest rate to be repaid at a later date (Current rate of return at 1.38)
Mutual Fund A portfolio consisting of stocks, bonds and other assets operated by a money manager who invests on behalf of the fund’s investors.
Along with these types of investments, there are a multitude of other online investment opportunities to add to your portfolio. Crowdfunding, for instance, has become popular due to higher rates of return while contributing to an entrepreneurial cause.
Where to invest
Before you look into how to buy shares with brokers like Interactive Investor, you need to understand the basics of the stock market. When people talk about the market, they are really referring to an index. An index is an imaginary portfolio, consisting of various securities and stocks that indicate how well a particular market is doing. The three most common stock indexes in the U.S. are the Dow Jones Industrial Average, S&P 500, and the Nasdaq composite.
The DJIA represents around a quarter of the value of the U.S. stock market and includes around 30 of the world’s largest companies. It is a price weighted index, meaning it’s computed by adding up the per-share price of the stocks of each company and dividing this by the number of companies.
The S&P 500 is a larger and more diverse index than the Dow. Like its namesake, it holds 500 of America’s most widely traded stocks. As opposed to the Dow, the S&P 500 holds around 70% of the total value of U.S. stock markets. It is a market weighted index, meaning every stock in the index is represented in proportion to it’s market cap. This allows changes to be measured in percentage amounts, rather than dollars.
The Nasdaq is best-known for its technology trading. While having most of the technology stock, it also includes speculative stocks as well.
In order to begin trading, you will need a stock brokerage account. There are now many options online, and it’s a constantly shifting sector but you can check broker websites for user reviews before you make a decision.
Start by choosing a small mixture of stocks. While diversifying means that the opportunity for high rates of return goes down, you are not as susceptible to the volatility of the market. By spreading the weight of your money between different companies, you are putting together a mutual fund of your own and exercising more caution with regards to your money.
If you’re new to the game, it’s often a good idea to stick to a number of company names you know and/or trust. Moreover, mix shares with fixed-income options, such as bonds, and this allows you to lessen the ‘unknown’ factor and guarantee yourself some sort of return, albeit at a lower rate.
As with anything else worth doing, time and effort are key in making a living off your investment portfolio. If you are willing to take some chances with the marketplace, as well as safeguard yourself, then the opportunity to live off your investments could well be waiting for you.