How to Start Investing
With the ease and availability of technology constantly improving, investing has become increasingly accessible over the past decade making more people than ever jump into the investment game and become more interested in growing their portfolio. Trying to decide whether investing is right for you and where to begin can be intimidating, but we are here to provide the basics and help you get started on your investment journey. Follow these tips to learn how to start investing.
Get Started Early
Getting an early start in investing is one of the best ways to see solid returns on your money. Thanks to compound earnings, your account balance will begin to snowball over time. For example, if you begin with investing $200 every month for 10 years and earn 6% average annual return, at the end of the 10-year period, you have $33,300. Of that amount, $24,200 is money you’ve contributed and $9,100 is interest you’ve earned on your investment. Of course, the stock market will have its ups and downs, but if you start investing at a young age, you’ll have plenty of time to ride them out and watch your money grow.
Decide How Much to Invest
Before you can start investing, you may wonder how much money you will need to begin this journey. How much money you will need depends on your age, financial goals, and risk tolerance. You may already have a good idea of how much you are willing to throw in, but if not, you can speak to a financial advisor to help guide you on the right path. Our Robins Investment and Retirement Services are here to provide our members with professional investment services when you need them. A financial advisor can help you assess your current financial situation and give you the advice you need to start your investment journey. Even if you can only start small, it’s better to get started now.
Investment Options
Whether you decide to invest through a 401(k) or similar employee-sponsored retirement plan such as an IRA, you choose what to invest. It’s important to understand your investment options and how much risk each one carries. Here are the most popular investments for those just starting out:
- Stocks: A stock is a share of ownership in a single company. Stocks are also known as equities. You can purchase stocks for a share price, which can range from the single digits to a couple thousand dollars, depending on the company.
- Bonds: A bond is essentially a loan to a company or government entity, that agrees to pay you pack within a certain number of year. In the meantime, you will receive interest. These are generally less risky than stocks because you know exactly when you’ll be paid back and how much you’ll earn. Bonds, however, earn lower long-term returns, so they should make up only a small part of your long-term investment portfolio.
- Mutual Funds: A mutual fund is a mix of investments packaged together. These allow investors to skip the work of picking individual stocks and bonds, and instead purchase a diverse collection in one transaction. The diversification of mutual funds makes them generally less risky than individual stocks.
- Exchange-traded Funds: Exchange-traded funds or ETFs are similar to mutual funds in the fact that the hold many individual investments bundled together. The difference is that ETFs trade throughout the day like a stock, and are purchased for a share price. An ETF’s share price is often lower than the investment requirement of a mutual funds, making them a good option for new investors or small budgets.
Picking an Investment Strategy
An investment strategy is a way of thinking that shapes how you select the investments in your portfolio. The best strategies should help you meet your financial goals and grow your wealth. The investment strategy you choose depends on your savings goals, how much money you need to reach them, and your time horizon. Whether you have long or short-term savings goals, be sure to choose the best investment strategy to fit your needs and seek professional help if you are unsure what your best options are.
Investing well can produce rewarding experiences you share with others around you. In general, developing your own disciplined investing approach based on rational, informed decision-making can lead to financial peace of mind.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.