How to Start Investing

Once you’ve mastered budgeting your monthly expenses, investing should be your next task to take on. Consider these tips to get started investing now, so you can reap the benefits in the future.

Businessman analyzing stock market graphs.

The earlier, the better. Investing from a young age is the best way to see a return on your money. Thanks to compound interest, your investments’ returns start earning their own return! Investing early also gives you the ability to ride out any fluctuations in the stock market.

Decide how much to invest. When you should invest, and how much to invest, depends on your financial goals and how long it will take to achieve those goals. If you’re a young investor, using any money left over from your budget can be one way to start.

Open an Investment Account. There are multiple ways to open an investment account and with the rise of social media, there are even apps designed to help you start investing. You can use these apps to invest pocket change or a few hundred dollars to get your investment journey started. Other more traditional ways of investing include investing in a 401(k), a traditional or Roth IRA, or in a standard investment account.

Consider your investing options.

FDIC insured products

  • Certificates of Deposit: With a CD, you will put your money in for a fixed amount of time - usually a few months or years - at a specified interest rate. CDs are insured by the FDIC. Since they are very low risk, the interest rate is usually also low. When the amount of time is up, you can keep it in the CD at the current interest rate, or withdraw it to use as you wish.

  • Savings Account: A regular savings account is a bank account that earns interest and is FDIC insured. These accounts are low risk, have high liquidity and a low expected rate of return.

  • Money Market Account: A regular savings account is a bank account that earns interest and is FDIC insured. These accounts are low risk, have high liquidity and a low expected rate of return.

Non-FDIC products

These are products that are Not Insured by FDIC or Any Other Government Agency - Not Bank Guaranteed - Not Bank Deposits or Obligations - May Lose Value.

  • Stocks: A stock is a share of ownership in a single company. The stock market can be volatile, so for a beginning investor, consider investing in stocks through mutual funds.

  • Bonds: A bond is similar to a loan to a company or government entity, which agrees to pay you back in a certain number of years. Interest is accrued on the bond as you leave it in the bank. Bonds are less risky than stocks because you are aware of the expected return of your investment.

  • Mutual Funds: A mutual fund is an investment account that allows investors to purchase a diverse collection of stocks and bonds all in one transaction. This investment opportunity is less risky than individualized stocks due to the diversification of a mutual fund.

  • Exchange-traded Funds: ETFs are similar to both stocks and mutual funds. Like stocks, ETFs can be bought and traded day-by-day. However, they are similar to mutual funds because they bundle many individualized stocks together.

Decide on a strategy and set goals. After researching your options and speaking to a financial professional for advice, choose an investment strategy and set your goals. Your goal, the length of the investment, and the amount of risk you’re willing to take, will all determine which investment strategy is right for you. Consider the length of the investment you are making. What are the pros and cons to a short-term vs. long-term investment? Read on to find out.

Short-term investing

Short-term investments can also be called marketable securities temporary investments. They are investments which can easily be converted to cash, generally within 3-12 months. Examples of short-term investments include CDs, money market accounts, savings accounts, and government bonds.

Pros:

  • High-liquidity. It is easier to withdraw funds because your money is not stuck in an account for a long period of time.

  • There can be low-risk. It is easier to withdraw funds because your money is not stuck in an account for a long period of time.

Cons:

  • Low-return. Since your money has only been invested for a short period of time, there may be a low return.

  • Higher tax bill. Since your money has only been invested for a short period of time, there may be a low return.

Long-term investing

Long-term investments are assets that are held on to for more than a year. Examples of long-term investments include real estate, bonds, mutual funds, ETFs, and stocks.

Pros:

  • Less Risky. Owning stock for a longer period of time gives you the ability to ride out any dips in the market.

  • Less Stressful. Owning stock for a longer period of time gives you the ability to ride out any dips in the market.

Cons:

  • You Need Patience. Due to the nature of the investment, patience is key. It will likely take a long time to see a return on your investment.

  • Less Control. Your money is invested in a long-term investment, so you will not see that money for a while.

Remember that your financial situation is unique. We’re here to help answer any questions, contact us to get started!