Investment Ideas for the New Investor

The definition of “investment idea” is a specific view, plan, and/or idea on ways to invest your money effectively.

There are many websites, TV shows, and articles that offer advice for the individual looking to invest their money and offer the potential investor with all types of investment ideas. Many that offer advice are from well known organizations and are prosperous investment advisors. The best method of investment involves meeting and discussing your personal situation with an investment advisor who makes recommendations based on an individual’s finances, a person’s life stage, and long/short-term plans; however, the type of investment individuals choose to make is ultimately their own decision.

So what are some investment ideas? The basic investment types are stocks, bonds, and mutual funds.

Investing in stocks (also referred to as equity), the individual is purchasing stock in a company and you become part owner of the business. This ownership entitles you to vote as a shareholder and to receive profits (referred to as dividends) from the company in which you own stock. If the company does not make a profit (also referred to as return on investment or ROI), the investor does not receive dividends. Therefore, the investor must make a wise decision on the future and profitability of the company in which they are investing.

By investing in bonds (also referred to securities), the individual is lending their money to a company or to the government. The company or government in return for your loan will pay the investor interest on the money and eventually pay back the loaned amount. The benefit of investing in bonds is their relative stability and very little risk. The downside is since there is very little risk there is also a low potential of return on investment.

Basically stocks are more volatile than bonds. With the purchase of stock, the investor is not guarantee to receive a return on their investment; however, stocks compared to bonds do offer a higher potential return on investment.

Investing in mutual funds is another option. A mutual fund is a collection of stocks and bonds. With a mutual fund investors are pooling their money with a group of other investors. The investor then specifies an investment advisor to select the investment types they want – large and small stocks; bonds from governments and companies; stocks in certain industries; or stocks in certain countries.

Basically, the higher the risk of the investment, the higher the potential return. An investment advisor considers a person’s life stage. The younger investor will likely to be advised to purchase stocks or mutual funds, a long-term investment type, because the younger investor has a longer period of time in which to take investment risks. The older investor, the individual approaching retirement, will likely be advised to purchase bonds, a short-term investment type, because they have a shorter period of time to take investment risks. Again, the ultimate decision on how an individual wishes to invest their money is their own.