Investing

Investing is all about making your savings multiply. Before we dive into all the details of how to do that, here are a few investing basics for beginners:

Investing: A summary of the basics

How much money you need to start investing: Not a lot. In fact, it’s mathematically proven that it’s better to start small than to wait until you have more to deploy — even if you try to play catch-up down the road. That little eye-opener is thanks to a magic formula called compound interest. (We’ll get into how that works in a minute and — yep — we’ve got a calculator for it.)

What to invest in: Stocks are one option. You can also consider investment vehicles that provide exposure to the stock market. The stock market is the place that will deliver the best long-term return on your money.

How to buy stocks: The easiest way to start investing in stocks, and the most common, is to buy a mutual fund — a type of investment that pools money from many investors and invests it in a group of different stocks; call it the “eggs in many baskets” approach.

The secret to making money in stocks: Stay invested. Time (to let your investments ride out the market’s inevitable short-term rough patches) and temperament (the ability to keep cool while others are freaking out) are the keys to investment success. So says a guy you might have heard of named Warren Buffett.

A corporation is a legal entity that’s separate from its owners for legal and tax purposes. Most corporations have stock and shareholders. Starting a corporation can be more costly and time-consuming than other business types, but it will ensure that you’re not personally liable for any legal problems associated with the business.

Key Takeaways

• Corporations protect owners from the business’s liabilities.
• Starting a corporation involves naming a board of directors, deciding what type of shares to issue, getting a certificate of incorporation, and filing the incorporation.
• The main disadvantages of forming a corporation are the paperwork and expense involved.

Steps for Starting a Corporation 

The seven basic steps to incorporation are as follows:

Choose a Corporate Name and Address  

Perform a corporate name search to ensure the name is unique so you don’t have problems in the future. You’ll file your business name as an entity at the state level, and can register it as a trademark at the federal level. Both actions help to protect your business name in the future.1

Select a State To Incorporate In  

You don’t have to incorporate in your home state, although it can be easier because you’ll only have to deal with one set of state tax rules and compliance regulations.2 But there are a number of factors to consider when choosing the location, including the cost to incorporate, tax rates, and corporate laws. 

Choose a Corporation Type  

Determine the best type of corporation for your business: C-corporation or S-corporation. 

C corp: Shareholders are protected from the corporation’s liabilities. But the business is taxed on its profits, and shareholders are taxed on distributions such as profit-sharing or dividends. 

S corp: Requires registration with the IRS and can help you avoid some of the double taxation found with a C corp. You pay taxes as if you were a sole proprietor or partner. 

Research the advantages of each and consult with your advisors before making a choice.

Name Your Company Directors  

Corporations must have a board of directors. The director positions will have to be filed within the articles of incorporation and by-laws. Check your state requirements on the number of board members that are required, as well as other regulations. 

Choose Your Share Type  

Even private corporations can offer different types of shares for shareholders. 

• Voting shares: Common shares for owners of the company; typically, one share equals one vote.
• Non-voting shares: Shareholders cannot vote, but do get the benefit of profit distributions.
• Preferred shares: These shareholders are paid distributions first and are also paid before common shareholders if the company goes bankrupt.3

Obtain Your Certificate of Incorporation  

You can get this at the corporate filing office for the state in which you incorporate. This process is usually completed with the secretary of state’s office.4

Process and File the Incorporation  

You can complete the incorporation using a lawyer or a third-party service. No matter which option you choose, you’ll need to file your incorporation with a registered agent. A registered agent is your company’s official point of contact with the state.5

Pros & Cons of Starting a Corporation 

Pros

• Reduces personal liability
• May have more tax advantages
• More financing opportunities
• Easier to valuate for a sale

Cons

• Several legal processes involved in applying
• Ongoing administrative responsibilities
• Annual filing fee required

Pros Explained 

Reduces personal liability: A corporation exists as a separate legal entity from your personal life. Any debts or lawsuits are incurred by the company, not the owner. Any business with potential for lawsuits should consult with a lawyer and consider incorporation. Incorporating will offer an added layer of protection, but it is still advisable to get business liability insurance.

May have more tax advantages: Corporations are often taxed at a lower rate and have better taxable benefits. Talk to your accountant about the tax advantages.

More financing opportunities: Financing a small business as a sole proprietorship or partnership can be difficult. A corporation can sell shares of the company and raise money easier than other business structure types.

Easier to valuate for a sale: A non-corporate business is hard to valuate properly. A business corporation value will be based on the business, not the owner, therefore making it easy to sell the company.

Cons Explained 

Several legal processes involved in applying: There are many rules and guidelines you must follow in order to successfully incorporate your business. These typically vary by state.

Ongoing administrative responsibilities: Depending on your type of corporation, you’ll likely need to file articles of incorporation and hold annual meetings with your board of directors. 

Annual filing fee required: In addition to an initial filing fee, you’ll likely need to pay an annual filing fee to your state.

Tips for Successful Investing

Educate Yourself: Continuously learn about different investment options, market trends, and economic factors.

Risk Management: Understand your risk tolerance and invest accordingly. Don’t invest money you can’t afford to lose.

Long-Term Perspective: Successful investing often requires patience. Focus on long-term gains rather than short-term market fluctuations.

Monitor and Rebalance: Regularly review your portfolio and make adjustments as needed to stay aligned with your goals and risk tolerance.

Seek Professional Advice: Consider consulting a financial advisor, especially if you’re new to investing or need help with complex strategies.

Common Mistakes to Avoid

Emotional Investing: Letting emotions drive investment decisions can lead to buying high and selling low. Stick to your plan.

Lack of Diversification: Concentrating investments in one asset class increases risk. Diversify to protect your portfolio.

Ignoring Fees: High fees can eat into returns. Be aware of management fees, transaction costs, and other charges.

Overtrading: Frequent trading can incur costs and lead to missed opportunities. Adopt a disciplined approach.

How to invest in gold in 2024 | Best tips for gold investment in 2024

In general, investors looking to invest in gold directly have three choices: they can purchase the physical asset, they can purchase shares of a mutual or exchange-traded fund (ETF) that replicates the price of gold, or they can trade futures and options in the commodities market. Average investors, for example, might buy gold coins, while sophisticated investors implement strategies using options on gold futures

1. Choose Your Investment Type

• Physical Gold: Buy bars, coins, or jewelry.
• Gold ETFs: Trade on stock exchanges.
• Gold Stocks: Invest in mining companies.
• Gold Mutual Funds: Invest in funds focused on gold assets.
• Gold Futures/Options: Contracts for future transactions (for experienced investors).

2. Monitor Market Conditions

• Economic Indicators: Watch inflation, interest rates, and economic stability.

3. Diversify Your Portfolio

• Balance Investments: Combine gold with other assets to reduce risk.

4. Consider Costs

• Storage and Insurance: Physical gold needs secure storage and insurance.
• Fees: Be aware of management fees for ETFs and mutual funds.

5. Stay Informed

• Market Trends: Follow gold market trends and news.
• Expert Advice: Consult financial advisors for personalized guidance.

6. Plan for the Long Term

• Investment Horizon: Gold can be volatile; consider holding it long-term to ride out fluctuations.

Start Investing Early, Keep Investing Regularly

“Successful investors typically build wealth systematically through regular investments, such as payroll deductions at work or automatic deductions from a checking or savings account,” says Jess Emery, a spokesperson for Vanguard Funds.

Regularly investing helps you take advantage of natural market fluctuations. When you invest a consistent amount over time, you buy fewer shares when prices are high and more shares when prices are low. Over time, this may help you pay less on average per share, a principle known as dollar-cost averaging.

You also should remember that no investment is guaranteed, but calculated risks can pay off.

“Over the last 30 years, an investment in the S&P 500 would have achieved a 10% annualized return,” says Sandi Bragar, managing director at wealth management firm Aspiriant. “Missing the 25 best single days during that period would have resulted in only a 5% annualized return.” That a reminder not to sell your investments in a panic when the market goes down. It’s incredibly hard to predict when stock values will increase again, and some of the biggest days of stock market gains have followed days of large losses. Good investing begins by investing in yourself.

Calculating Return on Investment (ROI)

Calculating Return on Investment (ROI) is a straightforward way to measure the performance of different investments. Here’s how it works using the examples provided:

ROI = (Current Value of Investment – Original Value of Investment) / Original Value of Investment

ROI allows different investments across different industries to be compared. For example, consider two investments: a $1,000 investment in stock that increased to $1,100 over the past year, or a $150,000 investment in real estate now worth $160,000.

Stock ROI = ($1,100 – $1,000) / $1,000 = $100 / $1,000 = 10%

Real Estate ROI = ($160,000 – $150,000) / $150,000 = $10,000 / $150,000 = 6.67%

Though the real estate investment has increased by $10,000, many would claim that the stock investment has outperformed the real estate investment because every dollar invested in the stock gained more than that invested in real estate.

What is the difference between saving and investing?

Saving is putting money aside for future use. It’s important to save so you can cover fixed expenses, like mortgage or rent payments, and to make sure you’re prepared for emergencies. Generally, people put their savings in bank accounts, where up to $250,000 is insured by the Federal Deposit Insurance Corporation (FDIC).

Investing is when you put your money to work for you. You buy an investment, like a stock or bond, with the hope that its value will increase over time. Although investing comes with the risk of losing money, should a stock or bond decrease in value, it also has the potential for greater returns than you’d receive by putting your money in a bank account. 

When should I invest?

Generally, sooner is better. Historically, the longer you invest, the less impact the short-term ups and downs of the market have on your return. 

Many investors sit on the sidelines, waiting for the “right” time to invest. Unfortunately, timing the market is virtually impossible. Instead, consider just getting started and remember this old investing adage: Time in the market is more important than timing the market.

Investment types perform differently

We believe it’s a good idea to own a variety of investment types—like stocks, bonds, or cash investments—as they can perform differently over time. In this chart, we see the variation in performance of stocks, bonds, cash, and a moderate portfolio that includes all three, over a 20-year time horizon.

Note

The decision to incorporate is an important one. Work with your business advisor, lawyer, and accountant to determine whether it’s right for you and your business. They can also help guide you through the process.

Beginner’s Guide To Successful Stock Market Investing

Frequently Asked Questions (FAQs) 

Is a corporation easy to start?

Forming a corporation can be quite complex. Start by filing paperwork with your state’s secretary of state office. In addition to several legal steps, you’ll likely also need to pay filing fees at the time of application and every year going forward.

Can anyone start a corporation?

Yes, as long as you follow the legal and financial requirements, you may start a corporation. You can even be a one-person corporation and fill all the required roles, but many people opt for multiple owners, partners, or shareholders.

What is diversification?

Diversification is an investment strategy that involves spreading your investments across different asset classes and sectors to reduce risk.

How much money do I need to start investing?

The amount needed varies depending on the type of investment. Some online brokerage accounts have no minimum deposit requirements, while others might require a few hundred or thousand dollars.

Where can I learn more about investing?

Numerous resources are available, including books, online courses, financial news websites, and consultation with financial advisors. Some recommended books include “The Intelligent Investor” by Benjamin Graham and “A Random Walk Down Wall Street” by Burton G. Malkiel.

Conclusion

Investing and starting a corporation are complex endeavors that require careful planning, understanding of the process, and ongoing management.

For those looking to start a corporation, the steps include choosing a corporate name and address, selecting a state to incorporate in, deciding on the type of corporation, naming company directors, choosing share types, obtaining a certificate of incorporation, and processing the necessary legal filings.

On the investment side, key takeaways for successful investing include choosing the right investment type, monitoring market conditions, diversifying your portfolio, considering costs, staying informed, and planning for the long term.

Whether forming a corporation or investing in the market, it’s crucial to educate yourself, manage risks, and seek professional advice when necessary to navigate the complexities and maximize the potential benefits.