You want to make your money work for you instead of spending so much time working for money.
You know you want to start investing your money but you aren’t sure how to start. You’ve likely heard a lot of conflicting information about how to get started, what the best strategies are and more.
Instead of confusing you further, we’re going to give you easy information that will help you get going. Continue reading this article to get the information you need to start investing.
The 411 on How to Start Investing
You can read here about various funds and other information. While this information is helpful, we’re going to give you the foundation so you can understand more of what you read there.
Understand What Investing Is
When you invest, it means you’re putting your money into something in hopes that you’ll receive a profit from it in the future.
Some people think that antiques and certain toys are good investments, But traditional investments are things like ownership in a business and/or real estate.
Anything that you do or buy that brings cash flow into your pocket can be considered an investment.
Know Why You Should Invest
If you don’t understand investing, you might wonder why you don’t just keep all of your money or spend it on something you want instead.
One of the biggest reasons you need to invest is because saving money isn’t going to cut it if you want to be able to retire with a nice nest egg. Inflation makes each dollar you have saved worth less and less so you need to have that money working for you instead of sitting in your bank account decreasing in value.
When you think about investing, think of it as the opposition to money sitting and decreasing in value. Each of those dollars you’ve invested is out working for you to generate more money.
When you earn new dollars through investing, each of those dollars starts working for you as well. As you can see, this can cause a nice snowball effect and mean you’ve got a nice amount of money working for you so you don’t have to work as hard.
As you continue to invest for the long term, your assets will begin to grow over the price of inflation. If you’re saving for retirement, you need to keep this in mind and make sure you’re setting yourself up for success.
Know When You Should Start Investing
You might be giving the screen a weird look because you’re only in your 20s or 30s. You don’t need to retire yet. You’ve still got plenty of years to work.
Sure, you might have plenty more years to work. But the younger you start to invest, the more time your money has to compound and help you build wealth.
When you start investing young, your money has time to grow so you can take advantage of compound interest. You’ll also be less likely to be harshly affected by a market downturn.
If something does go awry in the market, you’ll have time to leave your money there and bounce back from the hit.
Pay Off High-Interest Debt Before You Invest
If you are buried in high-interest debt, you should focus on paying it off before you invest. If you’re paying 20% interest on credit cards and you’re getting a 7% return on your investment – you can see the math is not working out in your favor.
Have an Emergency Fund
You should also have an emergency fund before you start investing. When you have an emergency fund, you can make sure you’re not going to go into bad debt because of an unexpected expense.
Important Definitions You Need to Know
Before you start investing, there are a few terms you should understand.
- Stock aka Share – A tiny ownership stake in a company
- Bond – Debt of a company, country or municipality
- Portfolio – A collection of investments held by an investment provider
- Diversification – Not having all of your eggs in one basket
There are more terms to learn but this is a good start.
Common Investment Options
Your head might start spinning as you look into all of the investment opportunities. Here are some of the most common you might consider.
- Traditional & Roth IRAs
- Employer-Sponsored Accounts
- 529 College Savings Plans
- Brokerage Accounts
- Certificates of Deposit
- High Yield Savings Accounts
- Money Market Accounts
We told you there was a lot to go through. Let’s simplify it a little.
Where to Focus When You’re Starting Out
Now that you see all of the options and can understand some of the terminologies, here’s a strategy to consider.
If you have an employer-sponsored account, make sure to contribute to it up to the employer match amount. When you contribute up to the employer match – that’s free money. You can ask HR if there is an employer-match program for your 401(k).
Check which tax-advantaged accounts make the most sense for you and then invest to the maximum available limit in those accounts.
Brokerage accounts are another good option when you’re getting started and can help you save for something long-term.
Up Your Finance Knowledge
Now that you know more about how to start investing, why stop there? We have more finance articles that can help you as you’re growing your wealth.
Navigate through our site, find your favorite section, drop a bookmark and come back later for more great reads.