Investment is the process of allocating your money to assets with the hope that they will yield higher returns than saving in a bank account. Investment can be done in a variety of ways including through shares, unit trusts, bonds and exchange-traded funds (ETFs).
The most important thing to understand before you invest is that all investments come with risks and it’s possible that you could lose some or even all of your money. To reduce this risk, it’s recommended to invest in a broad mix of assets and to diversify your portfolio.
It’s also important to have a solid financial foundation before investing. Setting aside an emergency fund and managing your spending are good first steps.
The most common types of investments include stocks, bonds, mutual funds and exchange-traded funds (ETFs). Stocks are the highest-returning asset class but carry a greater level of risk than other investments because they can fall in value. The most effective way to build a stock portfolio includes using an investing approach like dollar-cost averaging that involves investing a regular amount each month, regardless of the market’s direction. Bonds are an alternative to stocks and offer a lower return but less risk. The most popular bond investments include corporate, government and municipal bonds and mortgage-backed securities. Commodities are non-financial assets like agriculture, oil and gas that fluctuate in price based on supply and demand.