When looking to start investing, it can be a daunting task. Where do I start? What strategies can I utilize? Everyone’s investment decisions are unique and you may consider contacting an investment professional regarding your personal investment strategy, but here is a basic overview of some of the principles, strategies, and types of investments new investors can use to learn more about investing.
What is Investing?
The most basic definition of investing is to allocate resources, typically money, with the expectation of generating a specific outcome. However, it is not guaranteed that the investor will receive any profit, or even recoup their original investment. Investing involves risk, with the potential for rewards, and the potential for losses.
One of the first steps in investing is due diligence. Due Diligence helps to evaluate the potential opportunity to provide the investor with a holistic view of the company in order to make an informed investment decision. Due diligence takes place at both the broker dealer or investment platform level, and at the individual level for investors. You can learn more about due diligence in our recent blog Due Diligence Basics for Startup Investors.
Types of Investments
There are many types of investments, and some recognizable investment types include funding businesses through public markets (the stock market) or the private markets (companies who are not listed on the public markets). There are also many alternative investment methods like cryptocurrency, real estate, commodities, collectibles, and regulation crowdfunding.
Investing in stocks on an exchange is the process of putting money into a publicly-traded company. Many investors are familiar with the public markets, in which investors can purchase a portion of a share of companies like Walmart, Amazon, Facebook, and Apple. In the United States, the barriers to entry in the public markets are small, and most people can invest in the stock market. The ability to open an account has become more accessible in recent years for new investors with low minimums through multiple websites and mobile apps. This ease of access can make the stock market an appealing choice for newer investors.
Privately traded companies and startups have traditionally been limited to specific groups of investors, most known as accredited investors. Since privately-traded companies don’t have the same requirements to disclose financials and other information to investors, they are considered riskier investments do not have the same liquidity as public market investments.
Regulation Crowdfunding, created by Title III of the Jumpstart Our Business Startups (JOBS) Act of 2012, lowered barriers for the average investor to invest in private companies. To learn more about the differences between the public and private markets, check out our recent blog post Public Market vs. Private Market.
Traditional asset classes encompass the public and private markets and include stocks, bonds, ETFs, and mutual funds. Alternative investing includes other asset classes not available in the traditional market. Types of alternative investing include real estate, commodities, cryptocurrencies, NFTs, and others. There are many alternative asset classes investors can choose to utilize. Depending on your tolerance for risk, alternative investments can be a way to diversify your portfolio. You can learn more about alternative investing types in our recent blog What is Alternative Investing?
Portfolio diversification is one tool available to investors. Instead of putting all your eggs (money) in one basket (investment), diversification can spread out the investment and help to mitigate risk across multiple companies, industries, growth states, and asset classes. Diversifying your portfolio is a strategy an investor can familiarize themselves with when conducting due diligence on investment opportunities. Portfolio Diversification 101 gives an outline of basic diversification tactics.
Some investors may choose to base their investment strategies off ethical principles, through impact investing and socially responsible investing. This strategy helps investors avoid investments in companies that could have potentially damaging social/environmental effects in favor of those whose products, business practices, and/or ethics better align with the investor’s values. You can learn more about this in the blog Investment Strategies for Ethical Investing.
Some investors may want to utilize a hands-on investing approach, while others may prefer to be hands-off and have their investments managed by an investment professional. Active investing and passive investing are two additional strategies investors may choose to employ. Learn more about these strategies in Active vs Passive Investing.
There are many strategies a new investor can utilize, and it is important to be aware of the options and evaluate based on your own personal situation, tolerance for risk, and investment experience. You may want to consult with an investment professional to go over your situation and discuss options.
Putting it All Together
There are many investment strategies, asset classes, markets, instruments a new investor can choose to utilize. Each investment journey is unique to each investor, so it may be important to consult with an investment professional in your specific case. We have put together a list of 7 Tips for New Startup Investors that may be beneficial. Finally, visit our investment page to view investment opportunities currently on the MicroVentures platform.
The information presented here is for general informational purposes only and is not intended to be, nor should it be construed or used as, comprehensive offering documentation for any security, investment, tax or legal advice, a recommendation, or an offer to sell, or a solicitation of an offer to buy, an interest, directly or indirectly, in any company. Investing in both early-stage and later-stage companies carries a high degree of risk. A loss of an investor’s entire investment is possible, and no profit may be realized. Investors should be aware that these types of investments are illiquid and should anticipate holding until an exit occurs.