It’s important that everyone has a sobering conversation or two with themselves about money. Growing up, we don’t typically think about how important money is or how we can end up with enough money to be comfortable in the long-term.
Unless you’re blessed with a large fortune, we all have to make conscious decisions about our finances and how to improve them. Investing is a great way to improve your financial wellbeing, and we’re here to help you understand how it works.
This is a basic guide to money and investing. Our hope is that we can set you on your way to making smart investments and growing your wealth.
The Beginner’s Guide to Money and Investing
We’re going to layout the bare bounds of investing in this article, giving you a broad idea of how investing works and where you might fit in as a beginner.
The first thing to understand is what investing is, specifically. Investing is essentially the process of setting money aside in the right place so that it will grow. A good investment will grow regularly over time, compounding upon itself and returning large amounts of money to you later on.
Instead of placing money in a savings account or spending it on things you need, investing allows you to let your money work for you while you’re not spending it.
Of course, investing is a very broad practice and there are millions of ways to approach it. You can choose to be risky or safe, manage your own accounts, work with advisors, or allow others to handle your accounts completely.
The way in which you choose to handle your investments will depend entirely on what you’re hoping to gain from investing. In most cases, you will want to work with a broker.
Opening a Brokerage Account
Whether you’d like to work on investing yourself or with the help of an advisor, you’ll need a brokerage account. This is an account that you open with an investment firm who aids you in the process of investment.
It’s similar to a bank account, but instead of tucking your money away, you’re placing it into investments. The brokerage firm acts as the middle man between you and the investments that you purchase.
Even though the investments made are in the brokerage account, you own them. You’re able to buy or sell investments at any time you want. There are a lot of options when it comes to accounts.
Some require that you have a high minimum deposit, while others don’t require any deposit to open an account. Generally, higher-priced options will come with more savvy financial advice and benefits
That said, taking a more affordable option and working with a Robo Advisor is an excellent way to get high-quality insight. Sites like investinghero.ch can help you navigate investing in stocks with Robo Advisors.
Robo Advisors take a good deal of the personal work out of investing. They rely on highly intelligent algorithms and market insight to make decisions for you. This is great for people who want to have a reliable investment that they can purchase and leave alone.
For those of you who want to do the investing yourself, you should know a little something about the different kinds of investments available to you.
Types of Investments
Generally speaking, there are two primary forms of investment that you can make. You can invest in mutual funds or individual stocks. Of course, there’s a lot more nuance and variety as you start to dig deeper, but these terms will work for you as you’re just starting out.
A mutual fund is an investment that allows you to buy many small pieces of stock in one transaction. In other words, your investment is diversified among a number of stocks.
Piecing numerous stocks together into one fund is an excellent way to increase the certainty that your investment will do well. There’s far less risk involved when you invest broadly throughout a number of companies. If one company fails, then, your investment will only take a small hit.
With smaller risk, though, you get less reward. When you invest in individual stocks, your investment grows or declines proportionally with the company you invest in. If you make wise decisions, your small investment could rise meteorically and you might find yourself very rich.
On the other hand, you could find yourself losing money very quickly.
How to Approach Investing
Now that you have the investing bug, it might not be wise to just select the first brokerage firm in your search bar and let them invest your money.
You should have a general idea of how much of your money you’d like to invest, as well as how you want your money to work for you over time. Do you want to invest in risky stocks that will make you more money quickly, or are you looking to have a reliable investment that could set you up for retirement?
Additionally, consider how much money your investment will make at first. If you’re investing only a few hundred dollars, your fees and charges for brokerage help will almost certainly be higher than the ten or twenty dollars you might earn in returns.
In other words, it might be wise to start investing once you’ve saved enough money to start making returns. You should also do some research to see how your money could work for you.
Remember that long-term investments can be life-changing. If you plan to keep an investment going for thirty years, your $5,000 could grow into millions of dollars for your retirement.
Making plans like those requires a good deal of that and patience, so make sure you’re thinking things through before you place your money in an investment account.
Need More Financial Advice?
Hopefully, our guide to money and investing was helpful for you on your journey toward financial freedom. There’s a lot more to learn, though, and we’re here to help.
Explore our site for more information on how to make the most of your money.