Not all professionals are professional investors. However, you don’t have to be a pro to find success through investing. With a little research and few dollars, you can begin bolstering your savings in just a few short days. Give your money the chance to work smarter, not harder by learning how to start investing today. Fifty years from now, you’ll be thankful to have had time on your side.
Most professionals are already familiar with simple interest because they pay it on car loans and mortgages. However, investing relies on compound interest, which can actually help you save more money over time. This kind of interest goes back into the principal to help you earn the same interest rate on increasingly larger balances.
For example, if you left $1,000 in an account for 30 years at a 2.5% interest rate, your balance would more than double without you ever adding a penny. In this instance, it’s easy to see why you should start investing sooner rather than later.
Stocks and Bonds
Whether you’ve invested $0 or $1 million, you’ve probably heard of stocks and bonds. These investment opportunities are relatively straightforward, making them ideal for beginners. If you’re young and feel like taking a few risks, purchase stock in companies with a bright future. Your ROI will fluctuate with their success, so you may have to watch the market closely to determine when to withdraw or add more funds.
Investors that like more reliability often choose bonds over stocks. Bonds are loans you provide to the government, which then pays you back with interest. This kind of investment will show you your exact ROI and when you’ll stop receiving payments, making it a more trustworthy option.
Of course, you don’t want to put all your eggs in one basket — lest they break and leave you with nothing. Rather, you want to diversify your investment portfolio to help you mitigate losses and ensure some stability in an ever-changing economy.
One easy way to accomplish diversification is through a mutual fund. A mutual fund is a mix of investments that come in one neat package, making it ideal investing for beginners. Use your 401(k) to choose between professionally-managed funds and index funds to diversify and significantly improve your ROI.
Exchange-traded funds are another option for those looking to diversify their investments. Like mutual funds, ETFs come as a bundle of individual assets. However, they often require a smaller minimum investment, making them a good place for beginners to dip their toes in the proverbial pot of gold. Purchase your ETF for a share price and let an automated trader exchange it throughout the day like a stock to boost your ROI.
If your employer doesn’t offer 401(k)s, consider opening an investment account like a traditional or Roth IRA. Most online brokers require no minimum investment to open one and, in some cases, contributions are tax-deductible. Plus, if your employer agrees to match personal contributions, you’ll earn even more money on your investment. Just keep in mind that if you withdraw earnings from a Roth IRA or make an early withdrawal from a traditional IRA, you may owe income tax plus a penalty.
No Time To Waste
No matter how old you are or how much money you have, it’s never too late to start investing. Use an app like Robinhood, Acorn or Stash to start buying and swapping stocks. Talk to your boss about contributing to your 401(k) or open your own retirement account.
If you don’t feel confident handling investments on your own, talk to a financial advisor. They’ll likely offer a few tips for investing and help you get started.
This guest post was authored by Alyssa Abel
Alyssa Abel is a college and career writer who offers advice on strategies to success. Read more of her work on her blog, Syllabusy.