Investment Basics
Investing is key to growing your wealth over time and can be a pivotal element to reaching financial goals like retirement, education, or other major purchases. Investing done right can allow you to make earnings that outpace inflation, increasing purchasing power over time.
Types of Investments
As always, let’s start by looking at some different types of investments.
- Stocks: Stocks are the first type of investment that may come to mind. Buying stocks involves buying shares of a company, giving you a small ownership of that company. Earnings are typically based on the success of that company, so stocks offer a relatively high risk/high reward type of investment.
- Bonds: These are loans that you make to a company or government. They pay interest over time, so they are a relatively low-risk way to guarantee earnings over long periods of time.
- Mutual Funds: This is when a collection of investors pool their money together to be managed and put into various stocks. These offer diverse portfolios at lower fees.
- Real Estate: If managed properly, Real Estate can provide rental income and potential appreciation and can be an effective way to diversify your portfolio.
- Retirement Accounts: These are investments specifically designed to help you save up for retirement. They include IRAs and 401(k)s and are tax advantaged.
Investing Principles
Now that we know a little about these different types of investments let’s look at some ways to get the most out of them.
How to Start
- Set Clear Goals: We might be starting to sound like a broken record, but you always want to have a general idea of where you’re going before you set off. Determine your objectives for investing in order to help guide your strategy. Are you saving for retirement? For Education? Different goals will have different effects on your timeline.
- Assess Your Financial Situation: Before you invest, you want to have a stable financial foundation. Make sure you’ve paid off any high-interest debt and have a solid emergency fund before you set aside more money to begin investing.
- Choose an Investment Account: Different goals will lend themselves to different accounts. For example, if your end goal is saving for retirement, then you should probably be putting your money in an IRA or 401(k).
- Develop a Strategy: Based on your risk tolerance, timeline, and goals, make an outline of where you plan to allocate your investments.
- Start Investing: Start by investing small amounts and increase as you become more financially comfortable. By regularly contributing to your investment accounts, you will build more wealth over time.
- Monitor and Adjust: Plans and circumstances change. Remember to continue monitoring your investment and shifting your portfolio around to continue to align with your goals. Adjust based on your financial situation and/or market conditions.
Remember, investing always involves risks.
The investments listed above are NOT:
- A Deposit
- FDIC Insured
- Insured by any Federal Agency
- Guaranteed by the Bank
- Protected From Going Down in Value
Conclusion
By taking a measured and thoughtful approach to investing, you’ve given yourself the opportunity to build wealth over time to help reach your long-term financial goals. Remember to make informed decisions when investing. Unless you plan on becoming a day trader, investment should be a long-term process; don’t expect to reap the benefits right away.