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Investing for beginners

A savings account can be a valuable tool to help you to achieve your long-term financial goals.

However, while interest rates may have risen, if they don’t match inflation, your buying power or ability to buy will go down. That’s why investing could be a good way to grow your money in the long run.

But unlike saving, you can’t be sure of what you’ll earn.

It’s important to learn the basics and work out whether investing is right for you.

In this guide, we cover the main types of investments and some rules to remember.

What is investing?

What can you invest in?

What do you want from an investment?

Is investing right for you?

Takeaway tips for beginners

What is investing?

Investing is when you set money aside for the future with the aim of making it grow. You’re buying an asset you believe will increase in value over time. Price appreciation provides the potential to generate a better return than a savings account.

While you can technically liquidate your investments at any point, typically investments are meant to be held for a longer period of time to give your money a chance to potentially grow and recover from any losses along the way. But there are no guarantees. The value of any investment can go down as well as up, which means you could get back less than you put in.

What can you invest in?

There are many different types of investments. Here, we focus on two of the most common ways to invest: equities[@equitysecurities] and mutual funds.

What are equities?

Companies often raise money to expand their operations by selling shares of their business to public investors. These shares – also known as equities – represent ownership stakes in those companies.

Shareholders, or investors, are then free to buy and sell the shares through a stock exchange, such as the New York Stock Exchange (NYSE).

Typical equities may include common stock, preferred stock and foreign equities. They can potentially provide investors with portfolio diversification, as companies that issue shares can range in size, geography, and industry.

Many factors may influence share prices, such as the company’s financial performance, interest rates and the state of the wider economy. The value of your investment as a shareholder rises and falls with the share price.

What are mutual funds?

Mutual funds are a type of pooled investment vehicle. Shareholders of a mutual fund invest their money by purchasing shares of the fund. The money they pay for the shares is pooled together and invested in a portfolio of securities, such as stocks, bonds, or money market instruments.

They can be a good way to spread risk – or diversify – because if some of the investments in the fund perform badly, others may perform well during the same period, helping to balance out returns.

Mutual funds are professionally managed and operated by money managers, who maintain the portfolio in accordance with the fund's investment objectives.

Mutual funds, money market funds, and Exchange Traded Funds (ETFs) are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information, can be obtained by calling your HSBC Securities (USA) Inc. Wealth Relationship Manager, visit our Mutual Funds page, or call 888-525-5757. Read it carefully before you invest.

What do you want from an investment?

There are two main ways you can generate a positive return from an investment: income and growth.

Income oriented investments include dividend paying stocks as well as mutual funds that distribute income the fund generates to you directly.

Growth oriented investments include equities, as well as mutual funds that may potentially reinvest any income generated back into the fund, compounding any growth.

Investing for growth could be a good long-term strategy, as it may have the potential to deliver higher returns over the long run.

Investing for income could be a good shorter-term strategy, if you’re in or nearing retirement, for example. It may provide you with regular payments to supplement your other income.

Is investing right for you?

Start by asking yourself a few questions.

What are your goals?

If your financial goals are short term, investing may not be the right choice for you.

But, if you’re saving for something that has a longer time horizon, then investing may be appropriate.

What’s your current financial situation?

You may want to consider paying off any unsecured debts – such as credit cards or personal loans and anything other than your primary mortgage and car loans – and build up some savings before you start investing.

Ideally, you should have an emergency savings fund that could cover your living costs for 3 to 6 months without having to dip into your investments.

Ultimately, the longer you can leave your money invested and the sooner you start, the greater potential there is for your investments to grow.

What’s your risk appetite?

No investment is risk free and you’ll be exposed to market fluctuations. Risk and reward go hand in hand in the world of investing. As a rule of thumb, higher risk means potentially higher rewards and higher losses; lower risk means lower potential rewards and lower losses.

Starting small and making regular contributions to your investment account can be a great way to get into investing and build your knowledge as you go.

Takeaway investing tips for beginners

  1. Investing is often for longer time horizons
  2. The higher the potential rewards, the higher the risk
  3. Diversification[@diversification] is a smart way to potentially reduce risk
  4. If you’re not comfortable picking your own stocks, consider mutual funds
  5. The earlier you begin investing, the greater the potential for growth

Explore more

Find out how to start investing with this simple guide.
Find out what the differences are between savings and investments, and how they can help you grow your money.
Explore the risks and potential rewards you might want to consider before investing.

Additional information


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