Beginner's Guide to Starting Investing
Investing is an important step to evaluate your savings and ensure financial security for your future. But getting started investing can seem difficult and complicated, especially for beginners. Questions such as which investment instruments to choose, how much risk to take, and how long to invest may scare prospective investors. In this article, we have prepared a guide to starting investing for beginners. We will explain the basic concepts of investing, the advantages and disadvantages of investment instruments, investment strategies and the points you should pay attention to when investing.
Basic Concepts of Investing
Investing means purchasing or holding a property or asset in the hope that it will increase in value or generate income. The purpose of investing is to preserve or increase the value of your money. Some of the basic concepts you will encounter when investing include:
- Return: It is the profit you get from your investment. Return consists of the increase in value of your investment or the income it provides you, such as interest, rent, dividends. Rate of return is the ratio of the return on your investment to the investment amount. For example, when you sell a stock worth 1000 TL for 1100 TL, your return will be 100 TL and your rate of return will be 10%.
- Risk: It is the possibility of not getting the return you expect from your investment. The risk could cause your investment to lose value or cause you harm. The risk ratio is the degree to which the return on your investment deviates from its expected value. For example, when you sell a stock worth 1000 TL for 900 TL, your loss will be 100 TL and your risk rate will be 10%.
- Liquidity: It is the ease of converting your investment into cash. A liquid investment instrument can be sold or bought quickly and easily. An illiquid investment instrument requires more time and expense to sell or buy. For example, your money in your bank account is a liquid asset. Real estate is an illiquid asset.
- Maturity: The duration of your investment. The maturity determines how long you can hold your investment. Investment instruments with shorter maturities are generally less risky and less profitable. Investment instruments with longer maturities are generally riskier and have higher returns. For example, a savings account is an investment instrument with a short maturity. Stock is an investment instrument with a long maturity.
In the continuation of the beginner's guide to investing, we will explain what the most popular investment instruments are and how to choose them.