Taking the plunge into investing can seem scary, but it doesn’t have to be.
Investing is about putting your money to work. If you do it wisely, you can increase your principal, or the amount you’ve invested, over time. The money your investments produce can mean the difference between meeting your financial goals and settling for what you can afford.
Investing isn’t the same as saving. When you save, you’re putting money in a safe place to earn interest—a bank account, for example. That’s fine for building an emergency fund or accumulating money for short-term goals. But your principal won’t grow much faster than the rate of inflation, or the gradual increase in the prices of goods and services. That can leave you short on buying power. While there are no guarantees with investing, the goal over time is to increase your wealth and provide additional income.
CHARTING A COURSE
At its most basic, investing means buying financial products for growth, income, or safety. You can choose:
- Stocks, mutual funds and ETFs that invest in stocks
- Bonds, mutual funds, and ETFs that invest in bonds
- Cash and cash equivalent investments, including certificates of deposit (CDs) and US Treasury bills
Your first step should be to identify a strategy to guide your investment decisions. Unless you’ve already got a lot of money or investments on hand from an inheritance or a trust fund, you’ll be building your investment portfolio from the ground up. So you’ve got time to learn as you go. As a start, get a grasp of the basics. Begin with the financial articles in the magazines and newspapers, search for investor education resources online, focusing first on providers that aren’t selling investments. Talk to friends and family who are already investing.
When you’re ready to get serious, it might be a good idea to look for a financial mentor who can help you select specific investments—perhaps a friend or relative who is an experienced investor, or possibly someone at work. It can be a great way to get the encouragement you need to make important decisions. And as you expand your investment horizons, your mentor can help you create a strategy for putting together a more diversified portfolio.
HELPFUL HINTS
There’s no hard and fast rule about how much you should be investing, but aiming for 10% to 15% of your gross income is a good goal. If you’re contributing to a retirement savings plan at work, you can count the percentage you’re putting in there as part of your total. And whenever you get a bonus, a gift, or other unexpected cash infusions, it’s a good idea to put some or all of it into your investment account as well. That extra boost can make a big difference in what you’ll have later on.
START IT UP
You don’t need a lot of money to be an investor. But you will need enough cash to buy your first shares of stock, an ETF, or a mutual fund. It’s smart to set up an investment account so that you can contribute easily and keep track of your progress. A money market account with a brokerage firm or a mutual fund company is one way to go. So is a stock mutual fund. If you’ve got the account earmarked for investing, you may be less tempted to spend the money on everyday expenses. Once you have the account set up, decide on an amount you’ll contribute every week or month, and stick to it. One idea is to have the money deposited directly from your paycheck or transferred from your checking account. It’s even easier than paying a bill—except in this case you’re paying yourself.
A LITTLE FUN NOW AND THEN
Investing can be intimidating, and if you’ve never tried it, it can seem pretty boring as well. But if you give it a little time, chances are you’ll come to feel that it’s anything but dull. Tracking the performance of companies that interest you, or whose products you use, or even those that make you mad, can be as captivating as following any other part of the news.
After a while, you might find yourself more interested in—and more knowledgeable about—investing and markets than you’d have ever thought possible.
The risk of keeping your distance from investing is that it can be the only way to meet your long-term goals like sending your children to college, living a comfortable retirement—or having the means to take enough time off to travel around the world.
