The idea that we must graft hard for our money is something that is well established in our psyche. However, what we must remember is that sometimes the passive approach can be just as successful. Of course, one of the most effective ways of generating a passive income is to invest your money. A topic you can find a comprehensive guide on in the post below.
The Stock Market
Probably the best-known type of investment available is the Stock Market. In fact, we often associate those involved in financial trading as being the most well off. Of course, trading on the stock market isn’t a task that you should go into blind if you want to be profitable.
The first thing to grasp is how stocks work, as they are not the same as other financial products on the market, such as mutual funds or investment bonds. With stock, you are essentially purchasing a tiny part or stock (a share) in the company you invest in. This means that you become a shareholder, and as such, when the company makes a profit, they will pay you a proposal (to your shares) amount.
Additionally, as the company you have bought stocks in succeeds and becomes worth more, the value of your shares will increase as well. This is when many people choose to sell the shares they own, thus gaining a lump sum profit on their original investment.
Of course, what it is vital to remember here, is that stock value can go up as well as down. That means unless you are savvy about the way that you invest, you could end up losing money rather than making it. Happily, there are a few tactics you can use to make sure your stock market investment decisions are as sensible as possible.
The first is to be very aware of the psychology and emotions that can be involved in investing. After all, you may well have a great deal of money on the line, and remaining objective in that situation can be a challenge indeed. With that in mind, basing your investing decisions on research, facts, and data is a much better approach than going on gut instincts or ‘feelings.’
Fortunately, there are some pretty sophisticated tools out there designed to help supply you with the most reliable data on which to base your investing decisions. In fact, many people do their own research when it comes to the companies they are investing in. While others choose to use reliable indicator services instead. These are providers that offer signal services based on a complex amalgamation of different data. With the aim being to help you predict when certain stocks or shares may fall or rise. Something that means you can stay ahead of the game and remain as profitable as possible, in a less than certain arena.
The next financial product to consider as an investment is investment bonds. These differ from stocks and shares because you are not buying a part of a company. Instead, your money is being traded for a life insurance policy, one that will pay out on death or at a pre-agreed time.
When invested in a bond, your money will be put to use in different funds, which can increase or decrease in value depending on the market. Once again, there are strategies that you can use maximise your chance of a profit on this sort of investment. The first is that you look for a bond that guarantees a return.
The second is to be aware of how long you can afford to keep your bond open. After all, financial status can change in life, and not having access to this money may result in problems later on. Although usually the longer you can wait it out, the better chance you will have of cashing our bond in when it’s profitable. Just remember that one you have invested in your bond, you won’t have free access to your money. In fact, If you do need to withdraw some, you are likely to be subject to chargers, fees, and even tax penalties.
It can also be wise to pick a bond that allows you to diversify your investment across different funds. Then if one market fails, the success in the others will make up for it.
The next option to consider is the humble savings account! Yes, even something as simple and straightforward as this can turn out to be a great way of investing your money.
In particular, one of the most loved things about this type of investment is the very low risk involved. In fact, unless the bank or financial institution that you have your savings account with folds, you are pretty much guaranteed that your money is safe.
Obviously, the flip side of this is that you can’t expect the vast percentage returns on offer for higher risk financial investments. Although it is worth noting that the more you can put into your savings, the more they will return. Especially if you look for an account that offers an exclusive high rate for premium customers.
We’ve all heard those stories about people hoarding valuable assets in real life, such as gold and precious metals. You know the ones where they lift up an elderly person’s mattress only to discover a raft of pressed gold bars!
Now, we tend to think of these stories as a bit silly, and not a very secure way of storing assets. However, the theory behind them is sound. That is stockpiling commodities that are in demand to sell them on at a profit. In fact, this is precisely what happens in the commodities market.
Although, finding enough room to store tonnes of grain, or the security need to keep precious metal like sliver can be problematic. Fortunately, there is a way around this, and it’s by investing in the market and not holding the actual physical assets yourself. Something you can do by investing in a commodities company rather than a tangible asset.
Alternatively, some investors choose to circumnavigate the practical problems of commodities by obtaining a promise (bond) of a certain amount of a good such as silver, gold, fuel, or consumables like sugar and wheat at a specific price. It is this that they can then sell onto others that need it for a profit.
The great thing about putting your money in sugar or gold is that it doesn’t really matter what the broader stock market is doing. In fact, many people choose to invest in commodities for this reason. While others use commodity investing as a smart way to diversify their portfolio and so minimise any risk.
Peer To Peer Lending
If sinking all of your spare cash into precious metal and consumables doesn’t sound too appealing, there are other options to consider. One of these is to use your money to help others get the dream of running a business off the ground.
A particularly smart way of doing this is to get involved in peer to peer lending. A financial service which offers loans to customers, directly funded from your investment money. That is, they do not have to go through a bank or financial institution to gain access to the cash they need. Of course, to be profitable at this, there are a few essential things to remember.
The first is that there is a higher risk involved. After all, smaller business investments that have not been through a rigorous assessment before being granted a loan are probably much more likely to default.
However, some advantages counterbalance this risk. The first is that most peer loans are charged at a lower interest rate. Something that makes it easier to pay off and so actually increases the chances of this happening.
Additionally, you can quickly diversify your investment when investing in peer to peer lending across a range of accounts. Of course, this means that while some may default, the majority won’t, and so your chances of being profitable increase.
Also, this method of investing is one of the most passive. That is all you need to do is pick the loan provider you will work with, and they will do the rest. Something that means there is excellent potential for high returns with a low investment of effort on your part.
In summary, if you are looking for ways to make a passive income, investing should be at the top of your list. Of course, before parting with your hard-earned cash, you need to make an effort to understand that not all types of investments are created equal. In fact, some have more significant risks associated with them than others.
It is, therefore, crucial that you find strategies that will help you to minimise the risk and maximise the return on your investments. If you want to spend most of your time sitting back and letting the money roll in, rather than worrying about potential loss!
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