Have you always been curious about investing but found yourself intimidated? It’s never too late to learn how to invest. Investing is a great way to grow your wealth over time.
When you invest, you purchase something with the expectation of profiting from it in the future.
You may think you have to have lots of money to invest but there are many options for investors with a smaller amount of money. In fact, you can get started investing as little as $50 a month.
Whether you are saving for retirement, taking a vacation, or buying a home, investing can help you reach your financial goals.
As a beginner, it can be difficult to know how to get started in investing. While the stock market garners a lot of attention for investors, there are many other investments to choose from. This article provides actionable tips for new investors.
A 401(k) plan is an employer-sponsored contribution retirement account offered to employees, providing a way to automatically save for retirement. Employees make pre-tax contributions through automatic payroll withholding, which means you don’t pay income tax on those dollars. Employees select the percentage of their paycheck to put into the 401(k) The investment earnings in a traditional 401(k) plan are not taxed until the employee withdraws the money, usually after retirement.
ProTip from Denis Guskao, Manager at Day One Credit: “If your employer offers a 401(k) plan, it should be your first investment – especially if your employer matches a percentage of your contribution. The match is essentially free money and a guaranteed return on your investment.”
Depending on the type of company, some employers may offer other retirement accounts such as 403b and 457 accounts. Definitely consider opening a 401K with your employer if it is offered.
If you don’t have access to an employer-sponsored retirement account or have already maxed out your contribution, you can open an Individual Retirement Account (IRA) to invest.
There are two types of IRAs: Traditional and Roth. A traditional IRA works the same as a 401(k). Any money contributed will be treated as pre-tax and reduce your taxable income. A Roth IRA is funded with post-tax money so you won’t have to pay taxes when you withdraw it at retirement age the money since you’ve already paid income tax on it. Roth IRAs are only available at certain income levels. If you make over $135,000 annually as a single filer or over $199,000 for married filers, you aren’t eligible.
Stock Investing Apps
Many investing apps act like a stock exchange platform and are perfect for beginner investors. You can invest directly in the app and also read recent news, statistics analyst ratings, and the movement predictions about specific stocks. Most investing apps offer free or low-cost trades. Some examples of stock investing apps are Robinhood, Acorns, and Stash.
Find an Investing Partner
To lessen the initiation of amateur investing, consider finding a trustworthy partner willing to share their investment knowledge to help you both make a profit. Investment partners are great for larger ventures such as house flipping, which requires more complicated loans (FHA) or hard money loans.
A U.S. savings bond is a government bond offering a fixed rate of interest over a fixed time period. They are attractive investments because they are not subject to state or local taxes. Because the government guarantees the money will be returned to you, savings bonds are considered one of the safest, long-term, and low-rate investments. While returns may be low, savings bonds are great for young investors due to the protection provided.
Non-Load Mutual Funds
Mutual funds are good investment vehicles for beginners, but many mutual funds require a higher minimum initial investment – $3,000 or higher. However, several fund companies (i.e. Fidelity, Charles Schwab, and Vanguard) offer no-load mutual funds with low minimum initial investment amounts and no broker fees.
Index funds track a market index, which is a selection of investments representing a portion of the market. For example, the S&P 500 index fund buys stocks from the S&P 500 and attempts to mirror the performance of the index. Index funds often carry lower expense ratios – fees charged on the invested amount – than mutual funds because they take a passive investing approach by tracking a market index.
Because they require very little money and do most of the work for you, Robo-advisors, which manage investments using computer algorithms, are great for beginning investors. No prior investment experience is required to invest with a Robo-advisor and setup is very easy. Many Robo-advisors now offer socially responsible investment portfolios, access to human financial advisors, and financial planning tools. Robo-advisors include Wealthfront, Ellevast, and Betterment.
An exchange-traded fund (ETF) is a collection of securities, which can be traded on an exchange like a stock. ETFs can contain many types of investments, including stocks, commodities, bonds, or a mixture of investment types. ETFs offer lower expense ratios and fewer broker commissions than buying stocks individually. The price of an ETF’s shares will change throughout the day as the shares are bought and sold unlike mutual funds, which are not traded on an exchange and only trade once a day after the markets close. The best-known ETF is the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 Index.
The key to growing your investments is to invest regularly by putting aside money each month. If you start investing now, you’ll be in a stronger financial position in the future. While investing may seem scary, if you learn the basics before jumping in, you will be better prepared. Use the tips in this article to understand the investments available for beginners.
Emily Banks is a Bay Area native who got tired of San Francisco’s cold beaches, so she moved to San Diego. She is currently a Contributing Editor for 365BusinessTips.com as well as a Marketing Strategist for an online faucet supplier. When she is not typing away on her keyboard, she can be found eating street tacos in the sunshine.