Investing is a game. It’s fraught with risk, but its rewards can be astronomical or merely enough, depending on why the game is being played. Some folk play it for retirement money, some for college for the kids, others for the security of knowing it’s there, and yet others for the thrill of playing the game. It’s a game requiring mind reading skill and skill with knowing the value of the cards to win the pot. It’s always a gamble because of the volatility of the market, the value of the investment and how much risk the investor is willing to bear.
Methods of investment are numerous as are things to invest in, but in order to keep it simple, the discussion will cover shares and mutual funds. Before the ante is established, some definitions are in order. Mutual means “shared by others”. Mutual funds are a collection of stocks, bonds and securities developed by a mutual fund company using a group of investors. These stocks and/or bonds are chosen to satisfy a financial need. A share in this mutual fund will be bought and managed by the mutual fund company. Conversely, a share is a piece of a company. Stock in a company is sold by the company or through a stock broker. This piece is valued more by how its investors think of the company more than the company’s actual worth. It will pay a dividend annually depending on how well the stock does on the market. If it is sold, that is capital gain. If the stock loses value, that is capital loss. Taxes are paid on capital gain.
That said, it’s time to ante up. The investor needs to establish a goal and then decide what he needs to meet that goal. Most investment companies require $1,000 minimum to put together a portfolio. Some mutual funds companies only ask $50 to begin then $50 each month, which is easier for most people to handle. Many companies exist which will work with the small investor to realize their goals, while those with more income can easily pay the $10,000 some larger investment firms ask. There is also an option called one fund which owns other mutual funds. This could be attractive for the small investor with only a little to invest each month.
When to profit from the investment should be in the goal. Some scheduling is set up so that the investor can have small returns during his working years which can also mean more risk but upon retirement the returns are greater with much less risk. Investment calculators can be used to determine how much the investment needs to be in order to retire by a certain age, then mutual funds or shares purchased to facilitate that. For those investing to fund college tuitions, mutual funds tend to be the better bet because they are diversified and so is the risk.
How the game is played begins now. For the young and the adventurous, shares would be interesting if they have the time to monitor the market every day. Knowing when to hold ’em is part of the mind reading skills developed during this time; analysis of the market trends determine whether the investor pays capital gain taxes or endures capital loss. Since the goal is to pay for college, a small business, retirement or other facet of the goal, buying and selling shares means researching the companies or currencies or other securities invested in for growth potential and the possibility of loss. Long term shares forming the greater part of the portfolio would be used to fund the goal.
Planning a mutual funds portfolio is much the same. Some investors pay for it and leave it to do its thing with the result that not much happens. Investors can use a market timing strategy, meaning buy when the market is high and sell low, but experts say that is backward from how it should be done. Emotion governs much market movement but since this is the way it’s done, that’s the way it will probably stay. By far the wisest move to make to meet the goal is the buy and hold. Ride the market fluctuations, be warned that losses will happen, but gut it out and you’ll win in the end.
How to manage the portfolio depends on the time needed to maintain it, the money with which to maintain it and the span of time when its rewards will be withdrawn. Those who manage portfolios themselves have the time and money to do it; those who work or have families will need the services of a broker. Strategies exist for buying and selling, valuing shares, balancing those that do not perform and so on. For those who work, management by a mutual fund company might be the best way to go, for they might have families in addition to jobs, hobbies, social and civic commitments that could take time away from monitoring the market and analyzing its trends.