How to Start Investing
Learn how to kickstart your investment portfolio with these beginner-friendly tips.
How to Start Investing
Once you’ve mastered budgeting your monthly expenses, investing should be your next task to take on. Consider these tips to get started investing now, so you can reap the benefits in the future.
- Start Early
Investing from a young age is the best way to see a return on your money. Thanks to compound interest, your investments’ returns start earning their own return! Investing early also gives you the ability to ride out any fluctuations in the stock market. - Consider Your Investment Amount
Deciding how much you want to invest, when you should invest, and how much to invest, depends on your financial goals and how long it will take to achieve those goals. If you’re a young investor, using any money left over from your budget can be one way to start. - Open an Investment Account
There are multiple ways to open an investment account and with the rise of social media, there are even apps designed to help you start investing. You can use these apps to invest pocket change or a few hundred dollars to get your investment journey started. Other more traditional ways of investing include investing in a 401(k), a Roth IRA, or in a standard investment account. - Consider Your Investing Options
FDIC insured products
● Certificates of Deposit: With a CD, you will put your money in for a fixed amount of time - usually a few months or years - at a specified interest rate. CDs are insured by the FDIC. Since they are very low risk, the interest rate is usually also low. When the amount of time is up, you can keep it in the CD at the current interest rate, or withdraw it to use as you wish.
● Savings Account: A regular savings account is a bank account that earns interest and is FDIC insured. These accounts are low risk, have high liquidity and a low expected rate of return.
● Money Market Account: A regular savings account is a bank account that earns interest and is FDIC insured. These accounts are low risk, have high liquidity and a low expected rate of return.Non-FDIC products
These are products that are Not Insured by FDIC or Any Other Government Agency - Not Bank Guaranteed - Not Bank Deposits or Obligations - May Lose Value.
● Stocks: A stock is a share of ownership in a single company. One way to invest in stocks is to open an online brokerage account and purchase stocks or stock funds. If you’re not comfortable doing this yourself, you can hire a professional to manage your portfolio for a fee. The stock market can be volatile, so for a beginning investor, consider investing in stocks through mutual funds.
● Bonds: Bonds are an investment, where you agree to lend your money to a government or company at a set interest rate for a duration of time. In return, they pay you interest for the set time in addition to the amount of money the issuer promised to pay the bondholder in the agreement.
● Mutual Funds: A mutual fund is an investment account that allows investors to purchase a diverse collection of stocks and bonds all in one transaction. This investment opportunity is less risky than individual stocks due to the diversification of a mutual fund.
● Exchange-traded Funds: ETFs are similar to both stocks and mutual funds. Like stocks, ETFs can be bought and traded day-by-day. However, they are similar to mutual funds because they bundle many individualized stocks together. - Decide on a Strategy and Set Goals
After researching your options and speaking to a financial professional for advice, choose an investment strategy and set your goals. Your goal, the length of the investment, and the amount of risk you’re willing to take, will all determine which investment strategy is right for you. Consider the length of the investment you are making and the pros and cons of a short-term vs. long-term investment.
Short-term investing
Short-term investments can also be called marketable securities temporary investments. They are investments which can easily be converted to cash, generally within 3-12 months. Examples of short-term investments are CDs, money market accounts, savings accounts, and government bonds.
Pros:
● High-liquidity. It is easier to withdraw funds because your money is not stuck in an account for a long period of time.
● It can be low-risk. Short-term investing, depending on the type of investment, can be low risk because the investment may not be impacted by a drop in the market or change of interest rates.
Cons:
● Low-return. Since your money has only been invested for a short period of time, there may be a low return.
● Higher tax bill. Depending on the investment, you may have to pay more taxes on a short-term investment than if you had left the investment in a longer-term account.Long-term investing
Long-term investments are assets that are held on to for more than a year. Examples of long-term investments include real estate, bonds, mutual funds, ETFs, and stocks.
Pros:
● Less Risky. Owning stock for a longer period of time gives you the ability to ride out any dips in the market.
● Less Stressful. With a long-term investment, you won’t have to watch the market for day-to-day changes.
Cons:
● You Need Patience. Due to the nature of the investment, patience is key. It will likely take a long time to see a return on your investment.
● Less Control. Your money is invested in a long-term investment, so you will not see that money for a while.
Remember that your financial situation is unique. We’re here to help answer any questions, contact us to get started!
