Beginner’s investment guide, let your money work for you So you decided to start investing.

Congratulations! Whether you are starting to work independently, in the middle of your career, near retirement age or at its peak, that means you are beginning to think about your financial future and how to manage your capital carefully to make it work. for you.

No one was an expert in the first place, and even the best investors in the world have sat in their current position.

Let’s start with 1 2 2 basic questions:

Where to start?

How to start? These two questions can be discouraging, especially when faced with a series of discouraging investment conditions, such as the P / E (P / e) ratio, market capitalization and the return of equity.

But starting to invest is not as scary as it seems.

The first step in investing is to find out what kind of asset you want to have

Let’s start with this basic fact: in its essence, investment is the design of money that today’s expectation of getting more money in the future-taking time, adjusting risk, and considering inflation, leads to a compound annual growth rate satisfactory, especially if it is considered a “good” investment in relation to the standard. It is true; It is at the heart of the matter.

You take out cash or assets now and expect to have more cash or assets returned to you tomorrow, next year or the next 10 years.

In most cases, this is best achieved through the acquisition of productive assets. The productive assets are investments in the release of surplus funds within an activity. For example, if you buy a painting, it is not a productive asset. 100 years later, you still only own the paint, and the value of the paint can be high or low. (However, you might be able to turn it into a quasi-productive asset by opening a museum and collecting tickets.)) On the other hand, if you buy an apartment building, that not only the owner of the building, but also have all the money that generated rent and service income in that century.

Even if the building is destroyed after 10 years, you still have ten years of cash flow-which you could have used to support your lifestyle, donate to charity, or reinvest in other opportunities. Each productive asset has its advantages and disadvantages, unique peculiarities, legal traditions, tax regulations and other relevant details. In general terms, the investment in productive assets can be divided into several main categories.

Let’s look at three of the most common investments: stocks, bonds and real estate.

Investing in the stock market When people talk about investing in stocks, they usually refer to investing in common stocks, which is another way of describing business ownership or corporate equity. When you own a capital stake in a company, you have the right to share the profits or losses generated by the business activities of the company.

In general, stocks have traditionally been the most rewarding asset class for investors who want to accumulate wealth without using a lot of leverage.

At the risk of oversimplification, I tend to think that there are two ways to invest corporate capital-private holding and public trading.

Invest in private companies: there is no open market for the shares of these companies. For startups, starting a business from scratch can be high risk, high performance. He came up with an idea that you build a business, you run the business, so your expenses are not up to your income and you grow it over time to make sure that you are not only compensating for your time, but your capital is also being treated fairly with a return of more than what can be obtained from a passive investment.

While it is not easy to start a business, having a good company can support your family, send your children to college, pay for medical care and let them retire comfortably. Invest in listed companies: Private companies sometimes sell a portion of themselves to outside investors, a process known as an initial public offering (IPO).

When this happens, anyone can buy shares and become owners. The type of shares that are publicly traded may vary based on many factors. For example, if you are the type of person that stable businesses like and provide large amounts of cash flow to shareholders, you may be attracted to blue chip stocks and may even be interested in dividend investments, dividend growth investments, and value investments.

On the other hand, if you prefer a more aggressive portfolio allocation approach, you may be attracted to investing in the stocks of bad companies, since even a small increase in profitability can lead to a disproportionate increase in the market prices of stocks.

Investment in fixed income securities (bonds) When you buy a fixed income security, you are actually lending money to the bond issuer in exchange for interest income.

There are many ways to do this, from purchasing certificates of deposits and money markets to investing in corporate bonds, tax-free municipal bonds and US savings bonds. Like stocks, many fixed income securities are purchased through brokerage accounts. If you select your agent, you must choose between a discount or a full service model. When a new brokerage account is opened, the minimum amount of the investment can vary, usually ranging between $ 500 and $ 1000; the number of IRA or education accounts tends to be lower.

Alternatively, you can work with a registered investment advisor or an asset management company that operates in a fiduciary manner.

Invest in real estate Real estate investment is almost as old as human beings. There are several ways to make money investing in real estate, but the most typical approach is to develop something, then sell it to earn money, or have something, and then let someone else use it in exchange for rent or rent. For many investors, the real estate sector has been a path to wealth because it is easier to take advantage of leverage.

This can be bad if the investment is a poor person, however, applied to the right investment at the right price, the correct term, can make people do not have a large amount of net assets to accumulate resources quickly, control the base of assets on a much larger scale than he or she can afford. New investors may be baffled that real estate can also be traded as shares. Normally, this is achieved through a qualified company for real estate investment trusts (REIT). For example, you can invest in hotel real estate investment trusts and get a share of the income of guests staying in hotels and Resorts, which make up the company’s portfolio.

There are many different types of real estate investment trusts; integrated real estate investment apartment, real estate investment trust fund, real estate investment trust fund, real estate real estate investment funds specialized in high level residential, and even real estate investment trust fund.

The next investment step is to decide how to own these assets. Once you have identified the asset class you want to have, the next step is to decide how to pose it. To better understand this, let’s look at corporate equity.

If you decide to hold a stake in a publicly listed company, do you want to own those shares directly or through a centralized structure? Acquisition of property: If you decide to buy the property, you will buy shares in individual companies directly.

It takes a certain level of knowledge to do the thing well. To invest in stocks, just as you invest in private companies, remember that there are three ways to invest in stocks. Obviously, this means that you have to focus on the price you pay in relation to the cash flow adjusted to the risk generated by the asset. Learn how to calculate corporate value, calculate gross margins and operating margins, and compare them with other companies in the sector. Read the income statement and balance sheet. Look at the asset managers who have many shares and find out what kind of co-owners you are dealing with.

Centralized participation: the vast majority of ordinary investors do not invest directly in shares, but through centralized mechanisms such as mutual funds or exchange traded funds (ETFS).

You mix your money with other people and buy the property of many companies through a shared structure or entity. These consolidation mechanisms can take many forms. Some wealthy investors will invest in hedge funds, but most individual investors will choose investment instruments such as exchange-traded funds (ETFs) and index funds, which allows them to buy diversified portfolios at prices well below their affordability. The disadvantage is that it is almost completely out of control.

If you invest in ETFS or mutual funds, you are taking a trip to outsource your decision to a small group of people who have the right to change their configuration.

The third investment step is to decide where you want to put these assets. After deciding how to buy your investment assets, your next decision is to consider where those investments will be placed. This decision can have a significant impact on the way your investment is taxed, so it is not an easy decision to make.

Your options include taxable brokerage accounts, traditional IRA, Roth IRA, simple IRA, SEP-IRA, and possibly even limited family partnerships (which, if properly implemented, can enjoy some of the benefits of inheritance tax and probate schemes). tax subsidies).

Let’s take a brief look at some of these broad categories. Accounts subject to taxes: If you choose a taxable account, such as a brokerage account, you will always pay taxes, but your money is not so limited. You can spend whatever you want at any time. You can exchange all your money in cash and then buy a villa facing the beach. You can increase as much as you want each year, without restrictions.

This is the last incarnation of flexibility, but you have to get Uncle Sam to take a slice. Tax evasion: retirement plans such as 401 (k) s or Roth IRA offer many tax benefits. Some are deferred taxes, which (generally) means that when you deposit funds in an account, you get a tax credit and then pay taxes in the future, which allows you to increase your tax on deferred income year after year. Others are tax free, which means that you fund them with after-tax money (that is, you do not get tax exemptions), but you never pay taxes on the investment benefits generated in your account or on the money you withdraw later .

Good tax planning, especially at the beginning of your career, can mean a lot of additional wealth on the way forward, because the benefits themselves are compound. Some retirement plans and accounts also have asset protection benefits. For example, some companies have unlimited bankruptcy protection, which means that if you experience a medical disaster or other event that causes your personal balance to be destroyed, forcing you to declare bankruptcy, your retirement savings will exceed the creditor’s creditworthiness. .

Other banks have restrictions on the protection of the assets they can provide, but still up to seven digits. Trust or other asset protection mechanisms: another way to maintain an investment is through an entity or structure, such as a trust fund. There are some important plans and asset protection benefits for the use of these special property methods, especially if you want to limit the use of your capital to some extent. If you have a lot of business assets or real estate investments, you may want to talk to your lawyer about the creation of a holding company.