How to Invest When You Have No Idea Where to Start
Are you interested in investing? Whether you’re saving for retirement, college for your kids, a vacation home, or something else entirely, investing is a great way to create wealth. The only problem is that investing can be frightening if you don’t know what you’re doing. How do you gather your courage and take the plunge? Investing doesn’t have to be scary if you understand the basics and follow a few simple guidelines.
Investing allows you to earn money passively because once you’ve set up your investment account you don’t really need to do anything to keep earning interest. What’s important for you to understand, however, is the different types of investment options that are available to you.
- Stocks, or equity investments, are what you probably think of first when you think of investing. These are shares of publicly traded companies, and their value increases when the companies do well. Shareholders benefit when the company is earning profits, but are vulnerable when the market takes a downswing. Mutual funds and ETFs are grouped under stocks, but they’re actually pre-built pools of investments which can include bonds and securities.
- Fixed-income investments, like bonds, have a prearranged, fixed interest rate. These investments pay at regular intervals or after a certain amount of time has elapsed. Government bonds, for instance, are loans you give the government, which it agrees to pay at maturity at a set interest rate. Because they’re not vulnerable to market shifts, bonds are typically considered
- Money market or cash equivalent investments can be converted to cash very quickly. This category includes short term investments like certificates of deposit (CDs) and short-term debt securities like U.S. Treasury bills. There’s not much growth with this kind of asset, but there’s also not much risk.
- Property, including real estate and other tangible assets, can grow in value over time. Some property, like cars, trucks, and SUVs, depreciates quickly, which means it loses value. Real estate, however, is fairly low-risk.
For our purposes, let’s primarily focus on the stock market. While it’s true that stocks are vulnerable to market fluctuation, it’s also true that no investment is risk-free. Overall, the stock market is generally the most rewarding and accessible place for average investors to grow their money. As long as you don’t panic at every shift in the market, and understand that investing is about playing the long game, you’re likely to make money in the stock market.
To get started, decide which type of investment account works for you. You might be investing for retirement, in which case a 401(k) or an IRA will allow you to make tax-deferred contributions while you build your retirement fund. Roth IRAs are a little bit different, in that they’re funded with money that’s already been taxed, so they’re tax-free when you retire. There are also investment accounts designed for a specific goal, like paying for health care costs or educational expenses. Then, too, you can open an individual investment account, which allows you to make withdrawals whenever you need to do so. Note: it’s smarter to keep your money in the account, without withdrawing any, for as long as possible.
If your employer offers a 401(k), that’s a good place to start investing. Then you can consider creating an auxiliary investment fund, perhaps by investing in an IRA or opening a brokerage account. You can hire a full-service brokerage if you want, and let their investment advisers manage your money for you. However, it’s also possible to open a DIY brokerage account, for which you’ll do your own research and make your own trades. There are also investment apps that let you invest right from your cell phone, even if you have very little cash to invest.
It’s important to diversify your investments, which makes mutual funds appealing. These funds invest in a set of assets make it easy to diversify your portfolio. They’re typically managed by a financial professional or firm and have traditionally required a rather substantial minimum investment. Today, however, there are some mutual fund companies that offer fairly low minimums for those just beginning to invest. Exchange-traded funds, or ETFs, are similar to mutual funds, but they’re not managed by a person. This makes them less expensive and easier to access directly, without an expensive minimum buy-in.
The specific type of investment you choose is subjective, but there are a couple of important things to remember. First, keep putting money into your account, because regular contributions can help grow your investment more quickly. Your 401(k) will be automatically deducted from your paycheck, but if you have a brokerage account, it’s smart to set up automatic withdrawals. The other thing to remember is that the money needs to stay put once it’s in your investment account. Keep an eye on your portfolio, so you can keep track of what it’s doing and make adjustments when you need to, but for the most part, leave the money alone and let it grow.
If you’re looking for a reliable place to keep your money, look no further than GCS Credit Union. Since 1941, GCS Credit Union has been serving customers in Illinois, providing loans, basic savings, and other banking services. Having started as a single location, we’ve spread throughout the area, and now support Sangamon, Logan, Macon, Marion, Jefferson, Perry, Jackson, Williamson, Jersey, Macoupin, Montgomery, Madison, Bond, Clinton, St. Clair, Monroe, Washington and Randolph counties. Dedicated to focusing on our members’ financial needs, we’re a not-for-profit, member-owned financial cooperative. If you’d like to know more about the benefits of a credit union, call (618) 797-7993, or contact us through our website.