Investing! It’s something that we know we should be doing, but may not be too excited about. Investing seems complicated: how can we know which stocks to buy, or even how to buy them? It also seems scary. Stocks can go down, and many of us have seen them do so in dramatic fashion at least once in our lives. How can we trust that it won’t happen again? We can’t, of course, and that’s frightening.
But investing isn’t just about stocks. In fact, it may be something you already do – even if you don’t realize it.
Your big real estate investment
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If you own a house, guess what: you have an investment.
You’re living in your investment, of course, so its sole purpose isn’t to make you money (it’s not an “investment property,” a term you might hear). But any house you buy or build is an investment all the same: it’s something you have put money into that can change in value. If the real estate market goes up (and if you take decent care of your home), you’ll find that you can get more for your home than you paid for it if you ever choose to move. If the real estate market goes down, you’ll have to take less than you paid to get your home off your hands.
With a home, this value fluctuation can be a bit less scary. After all, your home isn’t just an investment. You’re living in it every day. If it happens to depreciate, then, it’s not a total loss: you’ve been getting value out of it constantly just by living there.
But knowing that our homes are investments can help us see that investing isn’t so strange or scary at all. It’s something that’s actually more familiar to us than we realize!
Of course, that doesn’t make it any less complicated. How on Earth can we know what stocks to choose?
Stocks that aren’t stocks
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If you’ve ever taken a stock tip from a friend, you may have learned that choosing individual stocks is no easy task. In fact, it’s one that’s probably best left to the professionals, or at least to dedicated hobbyists. You can certainly learn about stock trading, if that’s something that interests you: there are plenty of books on the subject, not to mention courses, podcasts, and other sources of knowledge.
But you can also choose to bet more broadly on the market, which doesn’t require the kind of specific knowledge that it takes to choose individual stocks. If you’re in it for the long haul, you can be fairly secure in a bet on a broad segment of the market. You can do this by buying into funds that hold large numbers of stocks. These include exchange traded funds (ETFs) – which are traded like stocks but hold other stocks within them, and mutual funds, which are independent funds that own stocks. These funds can be actively managed (which means a fund manager chooses the stocks) or passively managed (which means they have a set of rules and automatically buy the relevant stocks). For instance, an S&P 500 ETF just holds stocks from the S&P 500 – a collection of the 500 largest companies in the market, all fairly safe bets to stick around. For investors who want more security and a “set it and forget it” solution, a focus on these investments is wise.
Protecting yourself: what to hold besides stocks
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Of course, stocks can go down. No matter how simple it may be to invest in stocks, and no matter how many companies you can bet on at once, you are still at risk. So don’t own only stocks! Invest in other things, too.
What other things? Well, your house counts as one right off the bat. You have equity in it, and the real estate market will affect its value. To that, you should add bonds, which (at least in the case of short-term bonds) are less volatile than stocks (they are also less lucrative, but this is about protecting yourself). Then there are commodities, including rare metals. You can invest in gold just as you can in stocks – in fact, you can even put gold in an IRA. Other precious metals include silver and platinum.
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So investing isn’t strange – you do it already. It’s not complicated, because you can choose mutual funds and ETFs instead of studying individual stocks. And it’s not so scary, because you can diversify your holdings with things besides stocks to help you protect yourself in the event of a crash.
So – isn’t it time you got into the market?