When investing in any money making enterprise, always remember that everything is relative; the amount you can expect to earn is relative to the risk involved . A low risk usually means there is a low interest rate and a high interest rate often means there is a greatly increased risk of not only earning, but of also losing your investment. The best way to determine if something can be a worthwhile passive income stream is by comparing the likely return with the current risk-free rate of return on, say, government bonds. The 10-year government bank bond yield is at about 3%, so that any venture you try should have a substantially better return than this, otherwise you are wasting your eﬀorts since you can earn 3% doing nothing.
It should be noted that diﬀerent countries’ governments set diﬀerent rates. For example, in the Philippines you can get a return after tax (the government withholds the tax) of at least 7% on government bonds, and these rates are guaranteed by the Philippines government. (Some would say this is a bit risky, but they have never defaulted and are a better risk than many European countries’ governments and banks.) So I would suggest that if you will not make a return of substantially over 7% p.a. then leave it alone unless you are doing this for a hobby.
Internet Share Market Investing
Most of us have heard how some people make a vast fortune investing on the stock market, and indeed, you can make substantial financial gains investing in stocks and shares. There are some very common mistakes that first time investors have to be aware of before they try investing in stocks. If you have a few hundred dollars to spare and just want to see what happens, that’s ok, but if you are serious about creating a nice passive income, it is a real learning curve like anything else.
Don’t just jump in headfirst, although the basics of investing are quite simple in theory, that is, buy low and sell high. Most people do not, in practice, however, know what low and high really mean. What is high to someone who is selling is usually considered low (or low enough) to the
buyer in any transaction, so that diﬀerent conclusions can be drawn from the same information. Because of the relative nature of the market, it is important to take the time to study what stocks or shares are doing before jumping in.
Before starting you should learn at least the basic metrics such as book value, divided yield, price earnings ratios and so forth. Understand how they are calculated, where their major weaknesses lie and where these metrics have generally been for any stock and its industry over time.
When you start out it is very helpful to use virtual money in a stock simulator or with a demo account as this can help you to understand how things work and save a substantial sum of money to start with.
When you first look at penny stocks they seem like a great idea. With as little as $100, you can get a lot more shares in penny stocks than you could if buying a blue chip stock that could cost $50 or more (some much more) for a share. Penny stock gives a good profit if it goes up by a dollar. But, unfortunately, what penny stocks oﬀer in their profitability has to be measured against the volatility they have. They are called penny stocks for a reason; usually they are low quality companies that, more often than not, will not work out as a profitable deal, losing 50 cents on a penny stock could mean a 100% loss. Losing 50 cents on a $50 deal is not so bad and can usually be reclaimed later, given time. Getting solid information on penny stocks can also be diﬃcult, making them a poor choice for an investor who is still learning as they are exceptionally vulnerable.
Overall, it is a good idea to think about stocks in percentages and not whole dollar amounts. When you first start out or until you become experienced in dealing with stocks, it is best for most people to own and deal with quality stock as a long term proposition rather than trying to make a quick buck on low-quality companies, as most returns on penny stocks are a matter of luck.
Do not be tempted to invest everything in one specific investment; usually it is not a good move. Any company, even the best ones, can have issues and see their stocks decline dramatically. This happened in the last financial crash. Especially when just starting out, it is a sound idea to buy only a handful of stocks so you are less likely to have a huge loss in the event of problems, and overall ups and downs should even out to show a reasonable profit. The lessons learned while doing this then become less costly, but still valuable.
Be very careful about borrowing to invest as nothing is ever a sure bet. If you borrow for stocks it is called leveraging your money. This magnifies both the gains and the losses on a given investment. If you have $100 to invest and decide to borrow $50 to buy $150 of a certain stock and the stock rises 10%, you make $15, or a 15% return on your capital. But, on the other hand, if the stock declines 10%, you would lose $15, or a 15% loss, but what is important to understand
is that if the stock goes up by 50%, you will make a 75% return which is great, but, if the stock declines 50%, you lose all the money you borrowed and more. So until you have experience it is wise not to borrow to invest.
It is important to be aware that you could potentially lose all your investments over night, so it is vital to only use money you can aﬀord to lose. If you start out with an initial investment and make a few gains, take a percentage from the profits and reinvest that. Then, by slowly building up your total investment you will be in a stronger position without risking too much. Investing should be viewed as a long-term business, whether you are a trader, or a buying and holding type investor. To stay in business, you need to have some cash reserves on the side for emergencies and opportunities. This cash will not earn any return, but having all your cash in the market is a risk that even professional investors won’t take. If you do not have enough cash to invest and keep some for an emergency cash reserve, then you’re not in a position financially where investing makes sense.
Sound advice is hard to find and trying to guess the next big thing or fastest growing share price, hot tips, or working on rumors is not a sound business plan and can be full of dangers for first time investors. Remember, you are competing with professional firms that not only get information the second it becomes available, but have had years of experience and know how to properly analyze it quickly. If you’re lucky, you will win a few, but if your luck runs out you could lose everything. The best policy for beginners is to stick with investments in companies you understand and have personal experience dealing with. You should not treat investing like playing the lotto. When you are personally buying stocks in the market, you are competing against large mutual funds and professional investors that do this full-time and with far more resources and in-depth information than the average person can obtain. When you first begin investing, it is best to start small and take the risks with money you are prepared to lose, as the market can be unforgiving to any mistakes. As you become more adept at evaluating stocks, you can start making bigger investments.