So you’ve decided to start investing your money, congratulations! Investing your money is the best way to accumulate wealth over time, if you’re smart about it, of course. But don’t worry, I’m here to help you figure out what you need to know about investing your money. It’s time to let your money start doing the work for you.
Before you start investing, though, there are a few things you’ll need a basic understanding of first. There are four ways you can invest your money. First, stocks. Stocks are the investments in a company and its profits. Second, bonds. Simply put, bonds are loans made by an investor to a borrower such as a company or state. Third, index funds. Index funds are portfolios of stocks or bonds that track a market index, usually made up of stocks or bonds. Lastly, exchange-traded funds. An exchange-traded funds, or ETFs, is a basket of securities that are bought and sold through stock exchanges. There are a couple of other ways, but these four are usually the best ways.
Now that you know the ways, the next step is to figure out which one works best for you. To answer that question, you’ll need to figure out what your style, budget, and risk tolerance is.
When I talk about style, I mean do you want to be an active or passive investor? How much time are you willing to set aside for investing? There are three points to consider when figuring out your style and those are time, desire, and knowledge. Being an active investor means you’ll have to do a lot of the work yourself. That would also mean setting a lot of time and knowledge for it. Passive investing, on the other hand, is simpler and requires less effort.
Next, let’s talk about budget. How much money do you want to set aside for investing? Contrary to popular belief, you don’t need thousands to start investing. The amount doesn’t really matter, honestly. What matters is that you’re finally ready to start investing your money and that you invest often over time. Before you start investing, you need to set aside an emergency fund. This serves as a safety net should you need it. The suggested amount should be good enough to cover six months’ worth of expenses, but you certainly don’t need to set aside that huge of an amount. Just make sure you have enough to pay for unforeseen expenses.
Lastly, you’ll want to consider your risk tolerance. Not all investments will be a success, so you need to ask yourself how much financial risk you’re willing to bear. All investments come with a risk, but the levels of it vary. Higher risks mean higher returns and lower risks mean lower returns. A good solution to this is to ask help from a robo-advisor to create an investment plan that is tailored to your risk tolerance and financial goals.
To sum it up, investing money may seem daunting for a beginner, but if you figure out your style, budget, and risk tolerance, you’ll be making smart moves for your future.