Know The Types of Investments and How to Invest For Beginners – Before discussing the types of investments and how they are invested in more detail, it is important to point out that an investment is the activity of investing money in one or more types of assets for a specific period of time. Increased income or value.

Simply put, investing is one of the tools you use to reach your financial goals.

Fundamentally, everyone has different financial goals. A 25-year-old, for example, certainly has different plans and goals than a 50-year-old.

Investment is divided into long-term investment, medium-term investment, and short-term investment according to the purpose. Different timeframes naturally lead to different investment strategies and instruments.

Types of investment by purpose

  1. Short term investment

Short-term investments he lasts from less than 1 year to 3 years.

For example, a 25 year old man wants to get married within 3 years. So new funds are needed to prepare the wedding, which is not cheap. Faced with this need, young people are encouraged to invest in low-risk instruments that are stable in value, highly liquid, easily convertible to cash, and capable of generating a stable income. is recommended.

The instruments suggested to him include deposits, money market funds and short-term government bonds.

Can this young man invest in stocks for such financial purposes? Yes, but certainly not recommended.

This is because stocks are commodities whose value fluctuates greatly in the short term. Buying a stock is like buying a company, and business growth is certainly not something that can be judged only in the short term.

  1. Medium-term investment

From 3 years he can talk about medium-term investments who have 10-year financial goals.

For example, Mr. Budi has to enroll his son in a prestigious university in Jakarta in the next five years. So Mr. Budi needs a good amount to pay for the enrollment fee and the first semester. Budi may opt for slightly riskier products than deposits, money market funds and government bonds in hopes of higher returns, as the demand for funds will take five years or more.

Financial instruments are bonds, retail bonds and mixed mutual funds.

  1. Long-term investment

If the investment goal exceeds his 10 years, this investment falls into the long-term investment category.

These investment purposes may take the form of a child’s education expenses, the cost of arranging a child’s wedding, the purchase of property for posterity, a pension fund, etc. The longer the investment horizon, the more flexibility you have in choosing your product. You can choose low-, medium-, or high-risk products, or products that cannot be converted immediately.

Products that you can choose for your long-term investment include precious metals, mutual funds, stocks and real estate.

Investment Method

In today’s digital age, investing is not difficult given the easy availability of information through investment tools and market research. But investments cannot be made haphazardly. Here are some great ways to invest to reach your financial goals.

  1. Make sure you are financially sound

Before you invest, make sure you have an ideal emergency fund and financial support from health insurance or insurance.

Planning for the future is very important. But never underestimate what is important and prioritized right now. Without an ideal emergency fund, you’ll struggle to manage the risk of loss of income due to layoffs and financial uncertainty. Without health protection, you could also lose a lot of money when you need treatment. 

  1. Set goals first

Know your financial goals to meet over different time periods. Call it short term, medium term and long term. Without a clear goal, the investment process can be overwhelming.

Once you set your goals, you also decide how much money you need to reach them. After identifying your funding needs, you can begin the investment process.

  1. Familiarize yourself with your risk profile

Each investment vehicle has different investment characteristics and each investor also has a different risk profile. Risk profiles depend on an individual’s ability and willingness to take investment risks.

Conservative investors tend to avoid volatile products, while aggressive investors are more willing to take risks because they want high returns. Of course, your risk profile may change as your investment understanding grows. The better you understand your investments, the better your risk tolerance.

  1. Recognize systematic and unsystematic investment risks

If the risk profile has a measure of the investor’s mental state, there is also an investment risk that the investor cannot escape.

There are two types of risk in investing: systematic risk and unsystematic risk. Systematic spreads the completely unavoidable risk and attacks all kinds of means.

These risks may take the form of market risk, interest rate fluctuations, inflation, etc. Non-systemic risk is now understood to be risk that can be avoided by diversifying investment vehicles. These risks include business risk, liquidity risk and litigation risk.

These are things you should know before investing. Make sure you understand the types, risks, and appropriate ways to invest so you can reach your financial goals. 

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