A new book on investing for beginners is here, with a $100 investment that looks like a high-risk investment at $100.
But it’s the same concept that’s being used in investing for real investors: You should take out small amounts of cash, invest in a small number of stocks and bond funds, and try to stay within your risk tolerance.
It’s easy to fall into the trap of investing for the wrong reasons, experts say.
It could be a short-term investment, like buying a new car or house.
It might be a longer-term one, like investing in a retirement fund.
It depends on the individual.
But all the same, the best way to get the best out of investing is to get a handle on the risks, said Jim Prentice, the founder of Investopia.
“The first thing that comes to mind is that if you’re just looking to buy a new piece of furniture, you should probably be looking for a safe investment, because that’s where the money’s going,” Prentice said.
But investing for fun isn’t always the best idea, said John M. Cramer, president of the brokerage firm Cramer Investment Research.
For instance, Cramer said it’s possible to get more bang for your buck if you take a large stake in a large company.
That way, you get the benefits of an initial gain in cash, which can last a while.
But if you only have a couple of hundred dollars to invest, you may not realize the benefits.
That’s a very risky thing to do.
“The real thing that’s really, really dangerous is to put a lot of your money into something that’s going to grow over time,” he said.
“And that’s not a safe thing to put money into.”
For example, let’s say you’re in your 40s and have a retirement account of $100,000.
If you had a $10,000 stake in GE, that’s a great investment, Coderre said.
You can take a short position, but you’re taking a risk that your investment will grow to $100 million.
If the stock market goes down and you lose that stake, you’ll have to come up with another $10 million to cover your losses, he said, and you may have to borrow some of that money to get it out of the bank.
But if you invest the money in a stock, you’re making a more risky bet that your investments will grow and you’ll eventually have enough cash to repay that loan, Cederra said.
The best way is to have a plan that’s flexible, not just a fixed amount of money, Prentice added.
In his book, Investopia, Pender wrote about how to make an educated decision on which stocks to invest in.
You should also understand that the majority of investors aren’t stupid, he wrote.
They know the difference between a good, safe investment and a risky one.
You need to know when you should take a risk and when you shouldn’t.
There’s no one right way to invest for fun.
But as a starting point, Penders book is a good place to start.
Prentice is currently working on a book for beginners, so the book is only available in hardcover and ebook.
Follow ABC News Money on Facebook, Twitter and Google+.
Read more stories on money and stocks: