Investing for Beginners – What You Need to Know Before You Start
Deciding where to put your money can seem overwhelming, but investing for beginners doesn’t have to be. Whether you have $50 or $50,000 the goal stays the same – to increase your overall net worth. The more you know about how your money is being invested, the better, and that’s where we come in!
There are a lot of get rich schemes out there, and some are easier to spot than others. Just remember one thing along your journey – if an investment sounds too good to be true chances are it is.
It’s important to take risks. However, the higher the return, the more likely you are to lose your investment.
According to the Wall Street Journal, the housing market provided a way to double your money in a short period of time up until 2006, when the market collapsed.
Still, there’s money being made out there – with all sorts of different investments.
So, how do you start?
By building a portfolio.
Don’t let the concept overwhelm you, though. A portfolio simply represents all the ways you’ve gone about investing your money, and chances are you’ve already started.
If you’ve opened a savings account, bought a home, or even own an antique, you’ve began to build your portfolio by investing in assets. Anything that you own that is considered to have value is considered an asset.
According to the U.S. Securities and Exchange Commission, “Even if you are new to investing, you may already know some of the most fundamental principles of sound investing…. For many financial goals, investing in a mix of stocks, bonds, and cash can be a good strategy.”
So, let’s take a look at each one:
- Stocks
Researching and buying stocks is an important part of investing for beginners. Buying stock means you’re buying part of a corporation. Investing in stocks offers higher returns than bonds or a certificate of deposit (more commonly referred to as a CD).
Financial advisors traditionally recommend that investors subtract their age from 100 and use the answer as the percentage that stocks should represent in their retirement portfolio. So, if you’re a 30-year-old investor, you should invest up to 70% of your portfolio in stocks.
Stocks can be bought individually or in groups known as “index funds”. Individual stocks offer higher returns, but they are also considered more risky. Starting with index funds and slowly adding individual stocks is considered a smart way to start investing for beginners.
The Standard and Poor’s (S&P) 500 index fund is considered one of the most popular index funds and is made up of 500 of the most common stocks. Schwab Small Cap, T. Rowe Price Equity Index 500, and Calvert Social Index are other index funds worth researching.
Because investing for beginners can take up a lot of time, hiring a stockbroker may be more beneficial. Also known as “brokers”, a stockbroker is a regulated professional who buys and sells stocks and other securities. Stockbrokers not only help you decided on how to invest but take care of the paperwork and keep records for you.
Combining resources with others can also be an effective form of investing for beginners. Mutual funds allow people to combine their finances and hire a professional to buy and sell stocks and bonds.
Part of your portfolio should also consist of more conservative methods that offer less risk. After all, there’s a difference between investing and putting all your money on black while playing roulette at the local casino!
- Bonds
United States Government bonds offer a guaranteed profit, but they also take time.
When you buy a U.S. bond, the money is given to the federal government to invest. You’re your bond matures, you get your return.
Investors can spend up to $5,000 on bonds per year. They are a relatively easy part of investing for beginners, because they require little research and monitoring.
Bonds also make a great graduation gift to help teens and college students learn about saving. Bonds can be bought for as little as $25 and for as much as $5000. Companies also sell bonds that operate the same way.
- Savings Account
Virtually any U.S. citizen can open up a savings account at a bank monitored by the FDIC, and the money put in to the account is usually easy to get back out if needed.
Considered one of the most conservative forms of investing, interest rates begin around 1% and change often. Savings accounts also offer investors a safeguard against overdrafting from checking accounts.
- CD’s
Certificate of Deposits are useful in short term gains and operate like bonds. CD’s typically last anywhere from three months to a year, and they offer a higher interest rate than a savings account, but less than a bond. Most banks offer CD’s, and they are insured by the FDIC.
For more options, go to: Safe investing for beginners, investment advice for beginners, investing 101, stock market for beginners, retirement investing for beginners, online investing for beginners and finding good investments for the beginner.
Remember, Investing for beginners doesn’t have to be overwhelming. For more information on stocks, bonds, mutual funds, CD’s, assets and other ways to make your money work for you, take a look around and see what we have to offer!