Learning how to invest may sound scary at first, but with a little know-how, you can attain financial security while potentially helping to support and grow the businesses in your community that you truly believe in.
Why Should I Invest?
- Let’s imagine it’s 1985 and you purchase a loaf of bread for $1. Fast forward to the year 1990 and you walk into the same supermarket but now a loaf of bread is $2. You can only buy half a loaf of bread with $1. That’s inflation—a general increase in prices and fall in the purchasing value of money. To protect your buying power you should consider investing now for the future.
What is Investing?
- Let take a look at how we earn money; there are two ways:
- Someone pays you in exchange for goods or services. This can be a job; your employer pays you a steady paycheck for your work. Or, you run a business and sell products or a service to customers.
- Your money can go to work for you; in the same way you may work for an employer, you can employ money to work for you by saving or investing in products or services.
- Save—Think savings and checking accounts. When you deposit money into your account, banks use that money to lend to borrowers who pay interests on their loans. In exchange for you using your money, banks pay you interest.
- Bank accounts are a safe place to put your money because they are usually FDIC (Federal Deposit Insurance Corporation) insured— if your bank fails, the first $250,000 in your account is returned to you. Because bank accounts are a safe option to store your money, it is paid a low wage.
- Invest—You can buy products that can increase in value. When you need your money back, you sell it, hoping someone else will pay you more for it. Investment products—Bonds, Stocks, Mutual Funds, Real Estate and Commodities—are not FDIC insured and have a greater chance of losing your money. However, because you are taking on more risk, you have the opportunity to earn more money!
- Stocks, Bonds, and Mutual Funds, oh my
- When you make an investment, you are giving your money to a company, hoping that it will be successful and pay you back with more money. Many companies offer investors the opportunity to buy either stocks or bonds. Here’s how they differ:
- Pros: If the company profits or is perceived as having strong potential, its stock may go up in value and pay dividends—a sum of money paid regularly by a company to its shareholders out of its profits. You may make more money than from the bonds.
- Cons: The company may do poorly, and you’ll lose a portion or all of your investment.
- Pros: The company promises to return money plus interest.
- Cons: If the company goes bankrupt, your money may be lost. But if there is any money left, you will be paid before stockholders.
- Mutual Funds
- A mutual fund is a pool of money run by a professional called the “investment adviser” or a group of professionals The fund’s investment adviser will pick the stocks or bonds of companies and put them into a fund or group.
- Pros: Instead of investing in one company, your money will be spread out over several, minimizing your risk of losing your investment. Additionally, a professional will advise you and make sure you’re on track to reach your goals.
- Cons: You pay a fee when your fund manager buys or sells their shares in the fund. These fees pay the salaries and expenses of the professionals that manage the fund.
- Traditionally, funding is made through angel investors, venture capitalists, or government programs and you have to be one of the lucky few. You will often hear/read “we can’t fund every idea” or “there is only so much we can do with the resources we have. As a result there, has been new ways for companies to fund their ideas. Equity crowdfunding is one of them.
- Equity crowdfunding is the solicitation of small equity investment from a crowd of investors— think your friends, family, and strangers online. If your idea succeeds, your investors receive a kickback: cash, tickets to an event, or some other form of value. This model democratizes the process and opens the door to all classes of people and backgrounds. It also helps companies with difficulty finding financing when the government, VC’s or angel investors say no.
Donation/Rewards based Crowdfunding
- Another form of Investing/funding is Donations & Rewards-based Crowdfunding. As defined by Investopedia: ” this is a way to source money for a project by asking a large number of contributors to donate a small amount to it. In return, backers may receive token rewards that increase in prestige as the size of the donation increases; for small sums, the funder may receive nothing at all. Sometimes referred to as rewards crowdfunding, the tokens for donations may include pre-sales of an item to be produced with funds raised. Donation-based crowdfunding can also be used in an effort to raise funds for charitable causes. Because this sort of crowdfunding is predicated on donations, funders do not obtain any ownership or rights to the project, nor do they become creditors to the project.
- Another major key and benefit to crowdfunding is that it creates jobs. Businesses get the financial and communal support they need from the people in their communities and when the vision/business succeeds, it leads to more job creation.
Where to Begin?
- A good starting point is to choose a goal. Why are you planning to invest? Are you looking to buy a car, fund your child’s education, save for a comfortable retirement or simply invest in brilliant ideas from your community? Pick a goal, map out how many years you have to meet your goal, then write it down!
Additional Resources and Next Steps:
- Below you will find additional resources and tips to help your investment 101 education:
Are you ready to begin investing in the ideas that will better your communities right away?
Explore the forthcoming creative projects, ideas, and startups of the #Visionary100 when VisionPledge launches in BETA at the end of September.
Help fund and invest in the life-changing ideas of the future! Start by sharing this article with a friend.