Perhaps you want to start investing your money but you’re just not quite sure where to start. It’s one thing to read about the stock market, but it’s a whole different ballgame to put your hard-earned money in there. Sound familiar? Investing can be confusing, especially when you’re new to it.
However, investing is a necessary tool used to grow your wealth. If you ever wish to be a millionaire, retire early or quit your day job so you can pursue your passion, you’ve got to start investing your money.
What is investing?
Put simply, investing is a way for your money to make you money. Sounds nice, doesn’t it? If you invest your funds, the goal is for them to grow faster than inflation. Since most savings accounts don’t even keep up with the rate of inflation, investing is a must if you ever wish to retire.
You can invest your money in stocks, bonds, mutual funds (a portfolio of stocks, bonds and other assets), real estate, gold and silver, peer-to-peer lending, CDs, small businesses and more. If you’re using your money in hopes of making money, you’re investing.
How can you get started?
At the very least, you should be saving for retirement. The earlier you begin saving, the more money you’ll have when you retire thanks to compounding interest, or earning interest on your interest. Let’s say you start with $10,000 in a retirement account that earns 6 percent. After year one, you’ve earned $600 in interest. That money is reinvested in the account, so on year two you earn 6 percent on $10,600 for a total of $11,236.
If you’re employer offers a 401K plan, sign up immediately. Most companies match a certain percentage of your contributions. If your company does this, invest at least the percentage that the company is willing to match. The money your employer contributes is essentially “free money.” Don’t deny it.
If you’re employers does not offer a 401K match, sign up for a Roth IRA at your preferred banking institution. A Roth IRA lets you contribute after-tax income toward retirement. Withdrawals made after age 59 ½ are tax-free.
Whether you are saving for retirement through an employer or on your own, this is step one of investing.
What else can you invest in?
Before investing your money further, you have to take a look at your current financial situation. Do you have money saved up in the event of an emergency? If not, start by putting aside 3-6 months of income into a savings account. A good way to earn more interest than on a regular savings account is with a high-yield online savings account, such as Synchrony. Average interest rates on online accounts are 1% APY, compared to 0.03% APY on regular savings accounts. If you get really good at finance (ha) and get seriously rich you could always become an angel investor and invest in other people’s companies.
Once you are saving for retirement and have an emergency fund, the rest of your money should be invested. You can start with safer investments such as CDs or treasury bonds, which typically guarantee a specified rate of return. Riskier investments include stocks, bonds and mutual funds. Mutual funds are a portfolio of stocks and bonds and can typically be as risky or as safe as you choose.
With investing, the more diversified your funds, the better. As your wealth grows, you can start investing in riskier stocks, purchasing real estate properties or investing in yourself by starting a small business. The options for growing your wealth via investing really are limitless.
Investing is not a “get rich quick” scheme but rather a slow and steady climb to the top. The sooner you start, the better off you’ll be.
How did you start investing your money? Share in the comments below.
Donny Gamble Jr. is an online entrepreneur that runs a financial blog called Personalincome.org. He also is a frequent contributor to SmallBizTrends, Huffington Post, and many other personal finance blogs. Follow him on Twitter @donnygamblejr
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