Build Your Investment Knowledge
For most people, meeting financial security and lifestyle goals will most likely require saving and investing over a long period of time.
Saving and investing for your financial future is one of the most important things you can do in life, and the process can be intimidating. Certainly, relying on an investment professional is a smart move. But what about doing it yourself? There are many platforms which make investing more accessible – so what do you need to know? Having a strong foundation of investment knowledge is also important as you get more and more serious about planning for your future.
Remember, there is no guarantee you’ll earn money from the investments you make. But the more you understand about saving and investing, and the more committed you are to a sound plan, the more likely you’ll gain financial security and the money to fund a reasonable lifestyle.
Savings vs. Investing
Knowing the difference between saving (amassing money) and investing (making it multiply) is a great place to start building knowledge. The two big differences between saving and investing are time and the type of account you use as a holding pen for your money.
Often, the money you save is used to pay for short-term goals and needs — typically expenses you’ll need or want in the next five years. Short-term goal expenses can include an upcoming trip, rent, wedding, or home improvement project. Money for those purposes stay in a bank account that’s easily accessible, like a Certificate of Deposit (CD) or high-yield savings account.
On the other hand, the money you invest is set aside for long-term goals like secondary education, retirement, or starting a child’s college fund. Because these are long-term goals, having easily accessible cash is not the goal. The sooner you start investing, your money will compound interest, giving you a better opportunity to make a higher return on your investment, and better combat inflation.
Types of Investments
There are many different types of investments and the list continues to grow over time. Some of the more common types of investments include:
- Stocks
- Bonds
- Annuities
- Money Market Funds
- Commodities
- Municipal Bonds
- Mutual Funds
- Exchange-Traded Funds (ETFs)
- Hedge Funds
- Real Estate Investment Trusts (REITs)
Each of these has a specific structure and have pros and cons – like return, minimum investment, risk, and tax implications.
Retirement Investing
The most important part of securing a comfortable retirement is having a retirement savings plan. A retirement savings plan is a savings and investment plan that allows you to build wealth over time during your working career. It is important to gain understanding over time of what you can to – both while employed and once retired – to make the most of your investments. The more common types of retirement investments include:
- Employer-Sponsored Plans
- 401(k)
- 403(b)
- Pension Plans
- ESOPs
- Federal Government Plans
- FERS
- CSRS
- TSP
- Self-Directed Plans
- IRAs - traditional
- Roth
- SEP
- SIMPLE
How the Stock Market Works
The stock market – regulated by the Securities and Exchange Commission – connects buyers and sellers of investments. Typically, those investments are in the form of stock in a public company.
Things to Think About
Before you start investing, it’s a good idea to think about what you’re wanting to accomplish. Consider these questions:
- What are my long-term goals, including how I want to spend my retirement years?
- How much can I afford to invest? Is there a minimum initial investment?
- Types of investments (i.e. stocks, mutual funds, ETFs)
- Do I want to pay taxes on my investment gains now or when I retire?
- How do I invest on my own?
- Do I need expert help and what does that cost?
Getting Started
When it comes to investing and your long-term financial health, the earlier you start – the better. The money invested early is what creates the most wealth later.
A good investment strategy requires an understanding of the basics, even if you utilize help from investment experts. Oftentimes investing is emotional – trying to time the market and trust your gut instinct. Once you know the basics and have a plan, sticking to it is key.