Are you curious about investing? Do you want to learn more but don’t know where to start? You are not alone.
How to start investing is something you do not learn in high school. That is unfortunate because when it comes to investing time is key. It is best to invest for long periods of time. Starting to invest when you are young is one of the best financial decisions you can make. That being said, even if you didn’t start early you should start as soon as possible.
Investing is a broad topic and I would not be able to cover the entire topic of how to start investing in just one post. This post will be the first installment in my investing series. The goal of this series is to break down investing into easy to read posts. I also want to help people understand that investing is not as complicated of a subject as it may seem.
For this first post on how to start investing I am going to focus on the different types of investments. There are multiple avenues that you can take when deciding how to invest. As you learn more about investing you may decide to have multiple types of investments. That is a great way to diversify your financial portfolio but for now I will simply explain the types of investments you can make.
This list does not include every type of investment available. This list only includes the investments that I am most familiar with.
How to Start Investing: Types of Investments
There are several types of retirement accounts. When thinking about how to start investing this is a good place to start. Retirement accounts include 401k, traditional IRA, Roth IRA, 403b and 457b. There are several different retirement accounts to choose from. Some retirement accounts are employer-sponsored. Each of these plans has it’s advantages and disadvantages. Based on the plan you choose you can contribute a certain amount per year. Employer-sponsored plans allow you to contribute through a payroll deduction and have tax advantages in that they lower an employee’s taxable income. Each retirement plan has it’s own rules for how it is taxed, how to withdraw money and penalties for early withdrawal. Again, if you’re looking for how to start investing you should look into retirement plans. If your employer offers an employer-match you should take advantage of that benefit because it is free money that will benefit you.
College Savings Accounts
College savings accounts allow you to invest money that can later be used toward qualified educational expenses for your child. Qualified expenses vary based on the plan you choose. The key with these accounts, as with most investments is to start as early as possible so your money has time to grow and accumulate interest. Two types of college savings accounts are a 529 plan and an ESA (education savings account). The 529 plan has different rules depending on the state that your plan is opened in. For this account you can withdraw money for qualified expenses tax-free. An ESA is also a tax-advantage account. You have to meet certain qualifications and there are certain restrictions for these accounts. If you are wondering how to start investing for your child’s future a college savings account is a great option.
Money Market Account
A money market account accrues interest and is offered by a bank or credit union. These accounts are similar to traditional savings accounts but pay much higher interest rates. These accounts typically require that you keep a minimum account balance and may charge fees if your account drops below the required balance. The accounts are protected by the Federal Deposit Insurance Corporation (FDIC). These accounts offer higher interest rates than traditional savings accounts.
Money market accounts may allow the account holder to use checks or a debit card to access the money in this account. These accounts differ from traditional checking accounts because you are limited in the number of transfers you can make each month. You can be fined if you exceed the maximum number of transfers. If you are learning how to start investing this may be a great place to start. One big advantage of a money market account is that you cash is easily accessible to you.
This is probably what most people think of when researching how to start investing. Buying stock is buying ownership in a publicly traded company. It can also be called shares or equities. The ultimate goal when buying stock is that the value will increase after you purchase it and you will make money when you decide to sell. Conversely, if the stock price goes down you can lose money. Buying stocks can be risky, as most investments are, but the best course of action is to hold onto your investments. Don’t fall into the trap of selling as soon as the price drops. Stock prices go up and down but history shows us that holding on to your investments is the best course of action.
This is typically considered a safer investment but you will not get as great of a return as you would with other investments. Essentially a bond is when you lend money to a company or the government for a specified period of time. You will receive interest payments on the money you lent. Once the specified period of time is over you will receive your initial deposit back. Bonds used to be extremely popular but have gone down in popularity over time.
This is a managed fund that pools money from several different investors. The money is then invested broadly over many different assets. If you want to learn how to start investing I highly recommend looking into mutual funds. This is considered a diverse investment because your money is invested broadly versus investing in one type of stock or in one bond. When you invest in a mutual fund you own a portion of that mutual fund and therefore you own a portion of it’s assets as well.
Essentially commodities are physical products. The main types are metals, livestock and meat, agriculture and energy. If you are looking for how to start investing some people consider commodities to be a somewhat safe investment. If you look at metals in particular that would include gold, silver, copper, etc. Some people choose to invest in precious metals because there is only so much to go around. Precious metals cannot be made so there is only a finite amount available. They are considered to have intrinsic value and can be a good way to diversify your investments.
This is a relatively new type of investment. Cryptocurrency is a digital currency that is secured and virtually not able to be counterfeited. This type of currency is not issued by a central authority so there is no government involvement. If you look up how to start investing you will find that there is a lot of buzz surrounding cryptocurrency and why it’s a good investment right now. Some may consider this to be risky because it is so new and we are not sure of the future of cryptocurrency. The most popular by far is Bitcoin but others on the market include Litecoin, Peercoin, Namecoin and Ethereum.
If you have some capitol and are looking for how to start investing you can consider investing in a business. This can be done two ways. First you can invest in a company in exchange for equity. This means that you pay for partial ownership of that company and in exchange you get paid if the company turns a profit. Secondly you can lend money to a business. From this you will make money on the interest that the company will pay as they pay back the loan.
There are several different ways to invest in real estate. When researching how to start investing it is a good idea to at least look into real estate. These investments can diversify your investment portfolio. One way to invest in real estate is to invest in a Real Estate Investment Trust (REIT). A REIT is a company that owns income-producing real estate. This can be office buildings, apartment buildings, shopping centers, etc. The next type of real estate investment is rental properties. You can purchase a home or apartment building and rent it out for a profit. You can rent to long-term tenants or to a service like AirBNB. Another way to invest in real estate is by flipping houses. This is a fairly simple concept but can be risky. Essentially you purchase a home that needs improvements, you pay for the improvements and then resell the house for a profit.
I had to include this on this list of investments. If you are looking for how to start investing this is something that I highly recommend. Investing in yourself essentially is finding ways to better yourself and your financial situation. This can include learning new skills, developing your creative side, educating yourself, bettering your health, etc. This is a great place to start especially if you are in debt or do not have much money to invest. Focus on investing in yourself and how you can better your financial situation. Along with what I previously mentioned investing in yourself can include creating your own business or product. If you have a business idea or a product that you believe in try making that a reality. Starting your own business won’t be easy but it may be a great investment for your future.
There you have it. How to start investing
As I mentioned before investing is a broad topic and there is no way to cover everything in this post. If you want to learn how to start investing you first have to learn about investments. Here I have listed common ways to invest but there are definitely more investments out there that you can look into. Please follow me on Instagram or YouTube so you can see when I post more content to my investing series. Thank you for stopping by!