How to Start Investing
March 26, 2020 (Investorideas.com Newswire) You've safely arrived at adulthood and have your financial affairs in order. You've got a mortgage, old student loan payments, and car title loans all under control, and have enough money to live comfortably outside of major monthly expenses. Now you want to invest, but don't know where to begin.
Here are 5 tips for investment beginners that will help get you started in building a solid portfolio that will profit you for years to come.
Tips to Start Investing
1. Don't Delay, Invest Today
No matter what amount you can begin to contribute to an investment account, it's best to start early with compound interest. With compound interest, your money can snowball over time. As money goes in, the interest rate takes effect, and at the end of 10 years you'll have much more money than what you started with. Websites offer formulas that predict what your account balance will be with the monthly contribution you make, and although stock markets fluctuate and interests rise and fall, your money will still grow.
2. Calculate How Much You Can Invest
Most adults who work for an average of 40 years and hit the retirement age of 65 want to be able to live comfortably. Retirement accounts, such as the 401(k), make sure that becomes reality. Many companies provide accounts for their employees that match whatever amount their employee contributes to their own 401(k). This is a huge financial benefit, essentially providing free money for the future. So, contribute the minimum amount your company is willing to match, guaranteeing you'll be able to retire with twice the money you've put away during your working years.
3. Not Ready to Think About Retirement? Open A Different Kind of Account
If you aren't part of a corporation that offers a 401(k), or aren't in a place to begin a retirement fund on your own (called traditional or Roth IRAs), you can still create an investment account that won't have stipulations on how and when you can begin withdrawing money.
Taxable brokerage accounts are the best option for those looking to invest money that they can withdraw at any time, at retirement age or before. Many people assume that they must have large sums of money in order to begin investing, but that is not the case. You can begin accounts with as little as $500 and several online brokers don't require a minimum amount to begin investing.
4. Decide What to Invest In
Between stocks, bonds, exchange-traded funds and mutual funds, it can be scary deciding which to go with. Here is an easy definition of each to help you decided which is best for you:
- Stocks, or equities, are a small percentage of company ownership.
- Bonds are loans to companies that pay you back over several years, increasing in interest. Since the stock market can fluctuate, this is a more certain option.
- Mutual funds are a collection of investments by several investors to buy shares in stocks or bonds.
- Exchange-traded funds are created by the brokerage firm of a stock exchange which comprises of several investments packaged together.
5. Pick the Best Game Plan for Your Goals
If you are looking to invest money for a shorter period of time for a fast-approaching goal, it's best to stay away from stocks that can fluctuate drastically. Putting money away in a savings account or an investment portfolio takes lower risk. For long-terms goals, like retirement, it's normal to take put all of your money into stocks and ride the stock market out.
If neither of these options feel like a comfortable choice you can make on your own, there are robo-advisors that utilize algorithms to make the most of the money in your portfolio.
With these five steps, you are well on your way to becoming an investor. You'll be able to watch your money grow over time and rest easy knowing your future is secure.
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