how to invest
the question of how to invest boils down to whether you are a do it yourself diy kind of investor or would prefer to have your money managed by a professional many investors who prefer to manage their money themselves have accounts at discount or online brokerages because of their low commissions and the ease of executing trades on their platforms diy investing is sometimes called self directed investing and requires a fair amount of education skill time commitment and the ability to control one s emotions if these attributes do not describe you well it may be smarter to let a professional help manage your investments investors who prefer professional money management generally have wealth managers looking after their investments wealth managers usually charge their clients a percentage of assets under management aum as their fees while professional money management is more expensive than managing money by oneself such investors don t mind paying for the convenience of delegating research investment decision making and trading to an expert the sec s office of investor education and advocacy urges investors to confirm that their investment professional is licensed and registered 2some investors opt to invest based on suggestions from automated financial advisors powered by algorithms and artificial intelligence robo advisors gather critical information about the investor and their risk profile to make suitable recommendations with little to no human interference robo advisors offer a cost effective way of investing with services similar to what a human investment advisor provides with advancements in technology robo advisors are capable of more than selecting investments they can also help people develop retirement plans and manage trusts and other retirement accounts such as 401 k s a brief history of investingwhile the concept of investing has been around for millennia investing in its present form can find its roots in the period between the 17th and 18th centuries when the development of the first public markets connected investors with investment opportunities the amsterdam stock exchange was established in 1602 and the new york stock exchange nyse in 1792 34the first industrial revolution 1760 1840 and the second late 19th century and early 20th century resulted in greater prosperity as a result of which people amassed savings that could be invested fostering the development of an advanced banking system most of the established banks that dominate the investing world began in the 1800s including goldman sachs and j p morgan 5the 20th century saw new ground being broken in investment theory with the development of new concepts in asset pricing portfolio theory and risk management in the second half of the 20th century many new investment vehicles were introduced including hedge funds private equity venture capital reits and etfs 6in the 1990s the rapid spread of the internet made online trading and research capabilities accessible to the general public completing the democratization of investing that had commenced more than a century ago the bursting of the dotcom bubble a bubble that created a new generation of millionaires from investments in technology driven and online business stocks ushered in the 21st century and perhaps set the scene for what was to come in 2001 the collapse of enron took center stage with its full display of fraud that bankrupted the company and its accounting firm arthur andersen as well as many of its investors 7one of the most notable events in the 21st century or history for that matter is the great recession 2007 2009 when an overwhelming number of failed investments in mortgage backed securities crippled economies around the world well known banks and investment firms went under foreclosures surmounted and the wealth gap widened the 21st century also opened the investing world to newcomers and unconventional investors by saturating the market with discount online investment companies and free trading apps such as robinhood investing vs speculationthere is no clear definition separating investing from speculation used for legal or regulatory means all forms of investment incur risk and include a speculative hope that the investment will pay off because the outcome is uncertain there is little to distinguish between the two activities however some generalities do apply when attempting to categorize these activities price volatility is often considered a common measure of risk but a comparatively lower investment size can offset price volatility so although blue chip dividend paying stocks may seem much less risky than small cap growth stocks or cryptocurrency investments the risk may actually have more to do with the comparative risk taken on by the individual investor proper risk management has more to do with the position size of one s investment than the total investment capital the amount of risk in an investing strategy is also influenced by the frequency with which an investor takes on risk in an individual investment speculators tend to have a higher frequency of initiating risk thus speculation is considered more risky example of return from investingassume you purchased 100 shares of xyz stock for 310 per share 31 000 and sold it exactly a year later for 46 020 what was your approximate total return ignoring commissions keep in mind xyz does not issue stock dividends the resulting capital gain would be 46 020 31 000 31 000 x 100 48 5 now imagine that xyz had issued dividends during your holding period and you received 5 in dividends per share your approximate total return would then be 50 06 