Want to make your savings multiply? It’s time to start thinking about investing (here are some terms you should know). Below, we’re giving you a crash course in investing, so you can get started and create a plan that works for your lifestyle and goals.
Saving is the first step towards investing. Once you’ve set aside money for things like mortgage or rent and any other short-term goals, the rest of the money you’ve saved can be invested. This money should be earmarked for your long-term goals, like retirement.
Investing always comes with some risk, but there’s also potential for greater returns than if you were to just keep your money in a bank account.
Identify your goals
Now that you’re ready to invest, think about what those long-term goals are. Do you want to buy a house? Are you saving for retirement? Once you have your goals outlined, decide how much money you’d like to save for each goal.
Types of investments
If your employer offers a 401K or other retirement plan, that’s another great way to get started with investing. With a 401K, money is set aside from each paycheck and often matched by your employer. This match is free money and a guaranteed return on your investment.
Investing in the stock market will give you the best long-term return on your money. The average stock market return is about 10% a year. Here are a few ways to get started:
- Stocks represent ownership in a company. If you’re interested in buying individual stocks, you’ll need to do a fair bit of research and be prepared to take on more risk. When stock prices increase, you can sell your shares for a profit.
- Mutual funds are an easy way to get started with investing in the stock market. A mutual fund consists of a portfolio of stocks, bonds and other securities. You’re able to purchase a package of investments with a single transaction, exposing you to a lot of different companies versus buying stocks one by one.
If you’re looking for a lower risk investment to start with, consider bonds. These are loans provided to a government or corporation that pays back a specified interest rate to the investor (you). You can purchase individual bonds or bond funds through a bond broker.
When to invest
The earlier the better! The longer you invest, the better your potential returns. Instead of trying to find the right time to invest, focus more on how much time your money will be in the market.