Why invest? Investing gives you the opportunity to build your wealth over time. You’ll be glad to have those extra funds because that is an investment type with low returns) when you go to move out, buy a home, start a business, travel the world, or in the future, send your kids to college or retire comfortably — whatever is on your list of goals and dreams.
When should you start investing? Now. The sooner you start, the more time your money has to grow.
You have the potential to earn returns on not only the amount you invest but also on the returns themselves, which helps your money snowball over time.
Plus, you don’t need a lot to get started. So let’s not waste any time. This quick “Investing for Beginners” rundown will help you:
- Understand the basics
- Learn about common types of investments
- Get started now, so you can start putting your money to work ASAP
Types of Investments
There are plenty of investment choices. Don’t be overwhelmed by that. You can start out with one or two types of investments and then diversify your portfolio (your collection of investments) by adding more as you go.
Here are some basic investment types you may want to consider:
- Mutual funds. A mutual fund is a professionally managed, diversified collection of investments that have been packaged together, enabling you to diversify your holdings without having to make individual stock or bond picks. Mutual funds are considered less risky than individual stocks, since some stocks in the fund may increase in value while others decrease.
- Exchange-traded funds. Like mutual funds, ETFs package multiple investments into a single bundle. Due to the way they are managed and traded, they may cost less to get into than mutual funds, so they are often considered a good option for beginning investors.
- Stocks. Stocks, also called equities, are shares of ownership in a company that entitle you to a certain percentage of company profits. Share values fluctuate as they are traded in the stock exchange, so while the potential for returns can be greater than those of some other investment choices, so can the level of risk. Proceed with caution.
- Bonds. Bonds, or fixed income securities, pay a fixed rate of interest over a specified period of time. That makes them a relatively low-risk alternative, but they also offer a lower potential return.
How to Choose an Investing Strategy
“Though the world would lead you to believe that you have to be the smartest person in the room to be a great investor, that’s simply not true. Many of the best investors became great investors because they started early,” says Kiersten Saunders. She and her husband, Julien Saunders, created a partnership called rich & REGULAR in 2017 to share the investing strategies that have helped them build personal wealth.
It’s important to note that how you invest today may be quite different from how you invest 20, 30 or 40 years from now.
- Early on, you may feel comfortable taking on more risk than you would closer to retirement, because you will have time to ride out fluctuations in the market.
- As you approach retirement, your investing strategy is more likely to focus on preserving the funds you’ve accumulated.
- This article, Investment Strategies by Age, offers more insight.
How to Start Investing
If your employer offers one, a 401(k) is a good place to start investing for your retirement goals. When you sign up for a 401(k), you will typically have the option of selecting from a number of investment options, often mutual funds, and may have access to employer matching.
For other goals, you may want to consult a Financial Advisor. Discuss the types of accounts and brokerage services available to you with an investment representative. Ask about costs for them to manage your account versus the option of making online trades or investments yourself.
Remember: Consistency is key. Contribute to your investment accounts early and often and you may be amazed to see how your contributions add up over time!