Investing is like a part of financial world a labyrinth where making the right decisions can lead to greater financial freedom, but taking the wrong steps can lead you into a whirlwind of losses and disappointments. It is a journey that requires time, knowledge, patience, and the ability to cope with losses.
TABLE OF CONTENTS
What is investing?
Money – save, invest or spend?
How to start investing?
Investment areas
Pension
Investment risks
For many, investing is a way to secure their financial future, while for others it is a source of endless stress and frustration. In this article, we will look at the different aspects of investing – starting with simple first steps that will help you create a healthy and sensible relationship with money.
Is investing really for everyone? And how can we make it so that financial security does not become the only goal in life, but is part of achieving peace and security?
What is investing?
Investing means making an investment with the aim of obtaining long-term benefits. capitalplacement. The main means of investment is money, which can be directed to different asset classes and projects. Thus investment means collecting and growing money over the long term, with the aim of earning additional income from the invested funds.
The word “investment", however, can also be used in a broader context, such as spending on education or investing time to achieve a specific goal.
You can invest in different asset classes, such as securities (stocks, investment fund units, bonds, etc.), as well as other assets - whether it's real estate, raw materials, precious metals, works of art, or developing your own business, supporting your child's education, and the like.
Money – save, invest or spend?
Money management is one of the important skills that affects our daily lives and future. When talking about investing, the first question that comes to mind for many is how to make money, especially if the goal is to make money quickly. Moreover, where to get money if the monthly income does not cover all the needs?
Just as important as increasing your income and earning extra money is knowing how to save money and invest it properly to achieve financial stability and prevent unnecessary spending. It is important to find a balance – between earning, spending, and saving.
So, if you want to save and invest, the first question is not always "How to earn extra money at home?", but you should start by reviewing your existing expenses, creating a budget, and cutting out possible expenses if necessary.
How to save money?
Good financial planning starts with creating a personal budget that helps you find a balance between saving, investing, and spending. A well-written budget is the foundation for financial stability and helps you achieve both short- and long-term financial goals.
When you don't have enough money to make the purchases you need or want right away, loans may seem like the first solution. Whether it's a car lease, student loan, or home exchange loan, it's important to assess whether it fits your personal budget and future goals before making a loan decision.
A home loan and a home exchange loan are often important tools for purchasing or exchanging your home, as such larger expenses are usually not possible to cover solely from savings. However, avoiding smaller loans and installment payments is often possible through conscious planning, prior savings, or a critical review of your needs.
When considering loans and installments, it is important to consider all the associated costs, including interest rates, repayment periods, and additional fees that may affect your financial situation. You should be especially careful in situations where an individual lends money to another individual, as such transactions involve higher risks. Thoughtful and informed decisions will help avoid financial difficulties and ensure long-term financial stability.
How to start investing?
When asking how to get started with investing, the first step is to understand why you should invest. Investing helps you grow your assets, achieve financial freedom, and secure your future by providing a way to beat inflation and create financial stability.
Investing for beginners should start with gathering knowledge and creating an initial plan. First, you need to define your goals – do you want to save money for retirement, buy real estate, or simply save for larger expenses? Next, you should create a budget that allows you to set aside an amount for regular investment.
It should not be forgotten that investing involves risks – the value of securities can fluctuate, companies can go bankrupt, and markets can change unexpectedly. Therefore, it is important to understand your risk tolerance and start with smaller amounts to gain experience and knowledge.
Investment areas
Money can be invested in a variety of asset classes and sectors, depending on the investor's goals and risk tolerance. Investment options include:
- securities, including shares, index funds and bonds,
- crowdfunding platforms, which allow you to invest in various projects and companies,
- precious metals, such as gold and silver, which are often considered a stable asset class,
- real estate that offers long-term value growth and potential rental income,
- cryptocurrencies, which offer high potential returns but are associated with high risk,
- hedge funds and startups that focus on high-risk but also high-potential investments.
Investing in shares can offer significant returns, but the volatility of stock markets means that securities The value can fall as quickly as it rises. Short-term investment in shares is particularly risky because it is strongly affected by market fluctuations.
Investing from within the company can be strategically beneficial, but wrong decisions can negatively impact both business and personal finances.
Investing in funds and microinvesting are lower-risk alternatives that are suitable for entering the market. When choosing funds, it is important to monitor their cost structure and investment strategy, as wrong choices can significantly reduce returns.
Investing in gold remains popular due to its stability, but this asset class is not risk-free either, as the price of gold can fluctuate due to economic and political factors.
When considering where to invest your money, it is important to make informed decisions and use trusted investment platforms. Investment festivals and other educational events provide a great opportunity to expand your knowledge and make informed choices. Ultimately, it is important to find a balance between risks and opportunities to achieve both short- and long-term financial goals.
Pension
In Estonia, it is based pension system on three pillars, the second and third pillars of which allow people to actively invest and increase their future savings. Pension investment account is an innovative solution that allows you to invest your pension savings independently. Both new contributions to the 2nd pension pillar and previously saved money in the 2nd pillar or part of it can be transferred to the account.
The returns of second and third pillar pension funds have varied greatly over the years, depending on the market situation and the fund's strategy. Before choosing a fund, it is definitely worth analyzing historical results, cost structure, and the experience of the fund managers.
Starting in 2021, Estonians will have the opportunity to withdraw their savings from the second pension pillar and use it as they see fit. Withdrawing money from the second pension pillar has proven popular, but this decision must be made with caution. Although receiving pension money immediately may seem tempting, with this decision, a person loses long-term income and future security, and from an investment perspective, it is advisable to find the necessary funds elsewhere if possible.
Saving for retirement is about finding a balance between short-term needs and long-term financial security. Therefore, it is important to make informed and well-considered decisions to ensure a peaceful and secure retirement.
Cryptocurrency
Cryptocurrency is a type of digital asset that operates on decentralized platforms. Many people ask how to buy cryptocurrency? The most common way is to open an account on a trusted cryptocurrency exchange like Binance or Coinbase, make transfers in fiat currencies, and then purchase the cryptocurrencies of your choice. It is also possible to buy cryptocurrency directly from cryptocurrency ATMs or through a bank that offers this service.
However, investing in cryptocurrencies requires thorough preparation and risk tolerance, as the market is extremely volatile. While high returns are possible, it also comes with the risk of losing some or all of your invested capital. For example, the value of cryptocurrencies can be affected by regulatory decisions, technical errors, market manipulation, or even hacking, which can cause significant losses. The unregulated nature of cryptocurrencies adds additional risk, as investors often lack legal protection in the event of potential problems. In addition, technological and cyber threats can lead to unexpected and irreversible losses.
Therefore, it is recommended to invest in cryptocurrency only the amount that you are prepared to lose completely, and to spread the risks among other more stable assets. When constructing an investment portfolio, cryptocurrency should be considered as an alternative and high-risk asset class, supported by an informed and strategic approach.
Real estate
Investing in real estate is one of the most popular and stable ways to grow your wealth in Estonia. Investing in real estate can provide long-term returns through both property value growth and rental income. This investment method is well suited for those looking for lower-risk options, compared to, for example, cryptocurrency.
Investing in real estate in Estonia is particularly attractive as demand for residential and commercial properties remains high, especially in larger cities such as Tallinn and Tartu. Before investing, it is important to assess market trends, the location of the property and associated costs, such as maintenance and loan interest.
Investment risks
Investing is an effective way to grow your wealth and increase your financial security, but it always involves risks. Successful investing requires understanding these risks in order to make informed and responsible decisions.
It is important to consider market risk, which arises from changes in the economy, politics and business environment, with every investment. For example, stock market fluctuations can lead to a sharp decline in the value of securities. In addition, there is credit risk, where investments, such as bonds or crowdfunding projects, may fail due to an inability to meet obligations.
Platform risk, especially in the case of investment and crowdfunding platforms, can also lead to losses if platform operators run into difficulties or projects turn out to be unprofitable. To avoid this, it is important to choose reliable platforms and diversify investments across different asset classes and sectors.
As a rule of thumb, you should only invest an amount that you can afford to lose without jeopardizing your personal financial well-being. A well-constructed investment portfolio, thorough research, and realistic expectations are the keys to managing investment risks and achieving long-term success.
Summary
Investing is an effective way to grow wealth and increase financial security, but it involves various risks. It is important to make informed decisions, considering market risks, platform reliability and asset diversification. It is safest to invest only money that you are willing to accept losing. Successful investing requires thorough preparation, realistic expectations and a diversified portfolio. In the case of cryptocurrencies, stocks and other asset classes, it is necessary to understand their specificities and market volatility in order to manage risks effectively.
