The Beginner's Guide to Investing
Entering the world of investing is both exhilarating and frightening all at once. The prospect of making it rich or losing it all strikes fear and excitement.
Learning to invest and most importantly when and where to invest is something that takes time. And, requires constant learning and improvement. It's an art and science mixed into one that requires changing with the times and being the constant student.
To make investing less overwhelming, beginners should dig in and learn things in chunks. Avoid information overload.
The first step involves looking closely at your current income and resources.
Before You Begin: Know What Your Working With and Define Goals
Before even dabbling in investing or reading lightly about types of investments, spend an afternoon looking over your financial situations.
Account for all your current income, assets and debts. Also create a monthly budget if you don't already have one to see exactly how much you have to invest each month.
Think about investment goals. Are you investing for a child's college education? For your own retirement? As a means to retire early? How much do you need to have and when? The answer to these questions will determine your investment strategy. Make a list of all the events and milestones you're saving for and when you need the money. Use the Chose to Save Ballpark estimator to figure out how you'll need to save for retirement and this college savings calculator.
Willing to Take a Risk?
Think about how much you're able and willing to risk before going further. Investments come with different risks, some offer little risk while others offer much more. The riskier investment options almost always pay larger dividends.
When you invest in mutual funds, bonds and stocks, your money is not secured like when putting cash in savings with a bank that's guaranteed by the FDIC.
The best way to protect yourself is to diversity. Put your funds in different types of investments, especially if saving for retirement or long term goals. It's also a good idea to trickle in your money by putting back so much ever month or week.
Long term investing like retiring in 30 years means you can probably handle some risk and can place money in higher yielding investments. Shorter goals like saving for a new house or car should be invested in less risky opportunities.
Types of Investments
Know that you know how much you can invest, how much you need to make and when you need it by, it's time to start looking at investment options.
When you buy investments, you basically put faith in a company. That the company will perform better than competitors, make profits and that other people recognize that it's a solid company. It's why proven companies like Microsoft and McDonald's have high stock prices.
Companies allow you to buy either stocks or bonds, and you in effect own some of the company.
Stocks- Ownership in a company through purchasing a share of the company's assets. Stock owners can usually vote at a shareholder's meeting and also receive dividends based on how the price of the stock rises. The price of the stock is based on the performance of the company.
Bonds- When you buy a bond, you lend an institution, either a government institution or corporation money for a predetermined about of time at a fixed rate. Over the lifetime of the bond, the bond holder gets a fixed dividend each month, quarter or year.
Mutual Funds- Investment advisers take the guess work out of buying stocks and bonds with mutual funds. Advisers research the best place to put money and many investors pool money together to buy into the fund. You can purchase shares and your money is pooled with the other investors. You typically pay a fee to get in to cover the advisers salary. It's also important to invest with a qualified adviser.
Where to Go For More Information
Remember, investing is something not mastered over night. You're a constant student that should always be looking to learn more.
- Read financial magazines like Forbes and financial newspapers like the Wall Street Journal to learn about current trends and financial news. Even the local business section in your hometown newspaper will have helpful information. Also, many reputable blogs and news sites are good places to bookmark and visit often.
- Talk to family and friends about investment strategies. Seek out relatives and friends that have been successful with investment strategies and pick their brains.
- Read books about investing, like the ones listed above.
- Talk to local professionals like bankers and investment brokers. Do this only after doing some research on your own and also check to make sure the investment broker is registered. All investment brokers are required to be licensed in the United States. The U.S. Securities and Exchange Commission has a guide to checking out potential brokers.
- Read some of the top personal finance blogs to stay up-to-date.
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