Learning how to grow your capital reserves is a crucial step for all investors and not-yet-investors alike. None of us can afford to simply leave our savings account to build a meager partial percent of interest over the long term. Instead, learning how to leverage your current assets to structure the stock market and other commodity purchases forms the backbone of best practices for new investors. Investments vary across a wide variety of mediums and asset classes, so learning how to best preserve your principal while still growing retirement or long term funding for larger purchases is a must when approaching any type of investment opportunity.
The world of finance is full of fantastic opportunities just waiting for you to reach out and take advantage of. But before you can run you must crawl. Start small and with a focus on learning and growing in order to translate those lessons into the larger marketplace that offers incredible rewards for those with a firm strategy and gut instinct.
Start with stock market research and foundational marketplace knowledge.
The best place to start for a new investor looking to explore and understand all that the wide financial world has to offer is in the stock market. Stocks exist within a robust trading economy that is insulated exceptionally well by its enormous size and pervasive integration across virtually all market segments.
Stock brokerage firms are even now offering their clients the ability to trade in cryptocurrencies as well as traditional stocks. These commodities were, until very recently, reserved by the fringe elements of the marketplace. Stock trading is the bread and butter for most investors, and for good reason.
Aside from some minor pitfalls like the prevalence of soft dollars and arrangements that continue between brokers and fund managers, the stock market in all its glory remains the proving ground for new investors. This trading space remains the best place for those looking to understand the fundamentals that underpin every other commodity market on the planet. This is because the stock exchange trades across industries and commodities, touching nearly every type and size of a company in the United States and beyond.
Because the market is such a diverse atmosphere of business commodities, learning the ropes here will translate into any other type of commodity trade you could hope to undertake in the future.
Why move away from traditional savings vessels?
The stock market is a beautiful commodity trading space, but its ability to generate wealth isn’t the primary draw for those looking to make a change from traditional savings accounts. In days past, CD and savings account rates were all the rage. You could sock away your savings and bag a double-digit interest rate that was worth something.
Nowadays, interest rates offered by financial institutions hover at an abysmal half a percent — if you’re lucky! There is just no daylight in the safest options out there for generating wealth. While you are guaranteed by the backing of FDIC insurance programs to never lose that money, the facts are clear. You are actually losing value every year by keeping your money close at hand in a bank’s savings account.
With the cost of inflation factored in, a typical interest rate actually loses you two dollars or more in real currency value every year. The stock and commodity markets offer the alternative to this depressed growth rate.
Evaluating companies takes time and a skilled eye.
The value of the stock market comes in two forms. The first is a yearly average of about 8% growth over its two hundred year history. But the second major advantage of stock market trading is the learning platform offered. In order to pick stocks like a pro, you will have to learn how to evaluate a company’s viability over the long term and any challenges or major windfalls that appear to be headed their way in the short.
One way to evaluate a corporate strategy is to rely on balance sheet reconciliation efforts. This is a process that all companies go through. Smaller firms often haven’t learned that they can automate this process with the help of a software solution, but large or small, the process remains the same. Corporate entities have to make sure there are no overlapping entries or leakages in their books. Using the same type of process you can evaluate corporate earnings through publicly available data in order to predict market movers before they take off. Fixating on the numbers is the best way to identify fast movers and long term winners before the rest of the marketplace catches on.
This is prevalent in other investing segments as well. Evaluating the data is something that Hayes Barnard and his enterprise Loanpal do on a daily basis. Loanpal works on advancing loans to consumers looking to install solar power capabilities on their homes or businesses. In order to identify qualified applicants, investment firms have to understand the credit history of their borrowers and create an overall image of how likely they are to lose money on an investment that is ostensibly placed in a person themselves.
Learn to be a responsible borrower.
On the subject of loans, it’s equally important to understand how to be a responsible borrower as well. Borrowing is something that we all will do at some point. Whether it’s through credit card purchasing or a mortgage to buy your first home, lenders will always exist, and everyday consumers will always take advantage of these lines of credit.
Learning to manage this unique addition of capital is something that not everyone internalizes responsibly though. The average American today carries over $6,000 in credit card debt. In order to resist the urge to utilize what feels like a fantastic deal, it’s a good idea to keep your credit card separate from your wallet. Only utilizing this credit when it’s absolutely necessary or when you know you will pay it back immediately is a great practice to make habitual.
Learning to grow capital and pay down debt represents the basic lever of strong personal finance. Master these two elements and you will unlock financial freedom and all that it has to offer.