The big question on whether to invest arises, obviously, when you had saved enough money which isn’t in a hurry to get spent. For a lot of people, the idea of investing begins to brew even when there isn’t actually any money yet, but there’s a potential to get and save some.
The simplest way to define investing is to use your money to create, well, more money. It’s probably the smartest move you can do with your money. If it’s done right, it’s almost painless, but very rewarding. An investment or two in the stock market allows you to appreciate the fruits of your labor – you get more time for recreation, education, retirement and the things that really matter.
The Pitfalls of Rookie Investing
- Never take the plunge, or taking the plunge late. What wannabe-investors are afraid of is how stable the market will be. However, this isn’t a good enough reason to do nothing. Doing nothing may look safe, but you are wasting time, resources and you won’t ever get started. The same is true when starting late. In your 30s or 40s, you will look back and regret not having started in your 20s.
- Investing with credit card debts. If you’ve become swipe-happy one too many times and your credit card bills have glaring digits, this is not the right time to think about keeping money in your savings account. Think about the interest rate of debts, which usually plays around 18% or even more annually.
- Short-term investing. Never think about short – term investing, it really is just a way to waste money and time. Invest your money in the stock market and leave it there for 3 to 5 years, even longer. If you need to spend on something short – term, be sure you get it from another budget. Never trade in and out again of the market.
- Say no to free money. There is such a thing: sometimes, companies offer a retirement savings plan that your employer is participating. By all means, participate just as much because you get the advantage.
- Play it too safe. Yuppies typically think about investing in the stock market. But later in life, bonds make more sense, especially as you will begin to rely on your investments are a means of income.
- Play it too scary. Investment isn’t one-size-fits-all. Don’t think what worked for your friends will work for you, so carefully plot your move before you make it.
- Considering lottery tickets as investments. Never think that the lottery will be enough to support your life later on. Neither will Beanie Babies, jewelry, Barbie dolls and other collectibles.
Learn the Ropes: WHAT to Invest in
When you have decided to invest, the question you will need to ask if how much wealth you would like to get from your investment. Some investments require you to keep your money untouched over a short period of time, but you still aren’t guaranteed to great returns. We’ve outlined the best ideas for the rookie investor in you:
Short term savings:
- A savings account: Your piggy bank is just as good.
- Certificate of deposit: This is a special bank deposit. Interest rates for CDs are similar to short term bonds, but will still rely on the CD duration. The interest is paid until maturation, when you actually get the original deposited money and any interest you’ve paid.
- Money market funds: This is a mutual fund especially for short-term bonds. The difference is, the shares in this type of fund are created to always be worth $1. There typically is better interest rates compared to a savings account, but the returns are smaller than what you’d get from a CD.
Long term savings:
- Mutual Funds: Mutual funds help investors stash their money away for bonds, stocks, or just about anything that the fund managers deems profitable. You have the privilege of letting the money be managed by the professional, but this isn’t always advantageous, especially as a lot of mutual fund managers lack skills in the market.
- Bonds: Bonds are beneficial because they offer fixed-income security, and they come in several different forms. They work very much like certificates of deposit, but corporations and the government issue them, whereas CDs are issued by banks.
- Stocks: the simplest way to explain what a stock is that it is a part of a business. Therefore, when you buy stocks, you are buying parts of a business, and therefore partial ownership. As the company grows, so does your earnings. Your stock value changes depending on how well the company does.
Retirement savings and plans are constructed in different ways to afford your versatility. Some plans allow your paycheck to be deducted automatically because the taxes kick in. Others require employers to take a part and withhold it from your paycheck (free money!). Some are dedicated towards education or buying a home, so early withdrawals may or may not be permitted.
- IRA (Individual retirement account): You are allowed to put some of your income into a retirement fund that’s tax-deferred. This means no taxes for you until you are actually start withdrawing your money. The taxes are based on the regular income tax rates, and the account is not exactly considered investments that can be withdrawn whenever.
- Roth IRA: Unlike the conventional IRA, there is no tax deduction for contributions, but it does offer a 100% exemption from federal taxes once you withdraw your funds to buy a home or settle for retirement. A Roth IRA may also be used for education, medical expenses and the like. You don’t incur a penalty, but your withdrawals are subject to income taxes if you withdraw and are younger than 59.5 years old.
The truth is you don’t have to have a thousand dollars before deciding to invest. The mere initiative to save at least $4 a day and pack lunch from home will give you the edge – time. And remember, as far as investments are concerned, the longer the time, the bigger the value.
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