Investing is something that anyone-yes, even you-can learn to do. But where do you start? The beginning is always a very good place. Answer the following questions and you’ll be on your way down the exciting investment path:
How much high-interest debt do you have?
The answer should be ‘none.’ The reason for this is that you are not ready to invest if you can’t afford to spend the money you are shelling out. Compound interest, or interest paid on money already earned and on the original money, will work against you when you have high-interest debt. Instead, you want it to work for you.
How much money do you have to invest?
Knowing this will help you to figure out your options. Some investments require a certain amount of money to start investing. Others have no minimum requirement. When you know how much you have, you can choose accordingly. If you aren’t lucky enough to have a large chunk of money just laying around, you can accumulate one over time. Begin by automatically paying yourself a set amount each month through direct deposit or transfer. Pay yourself as much as you can, and in no time, you will have a sizable sum to invest with.
How much risk can you take?
Investing means risking. However, the amount of risk is up to you. Generally, the greater the risk, the greater the possibility of return, and vice versa. It’s also generally true that the more time you have to hold the investment, the more risk you can handle because you can weather the ups and downs. It is so important to be honest with yourself on this question. Investing is a life long process, and you don’t want to make yourself sick over it.
Are you investing for the short or long term?
Unfortunately, we don’t all begin investing when we are in junior high. You may be 5 years from retirement, or 50. You may need your money at any moment, or not for another 20 years. Knowing what and when you are investing for will help you determine the best investment options for you, and those decisions ought to change over time with your needs.
Are you ready to learn a little?
All good investing requires a little research. It is never wise to blindly follow advice about what to do with your money. Luckily, it’s easy to learn about investing. A great place to start is at Yahoo Finance online. They have more information about finances than you can shake a stick at, much of it aimed at those new to investing. Another good place is The Motley Fool, at fool.com, where they give you the basics with a sense of humor.
For those less inclined to the Internet, there are endless books about the subject. Personal Finance for Dummies is an excellent first source. If your employer offers retirement plans, that can be a great place to get your investing feet wet. You can quickly gain a good understanding of investment from these sources.
Here are some common beginner investment options to get you started:
SHORT TERM, LOWER RISK: savings accounts, short term CDs, short term bonds, high-yield money markets, and bonds.
SHORT TERM, HIGHER RISK: individual stocks, mutual funds.
LONG TERM, LOWER RISK: individual stocks, mutual funds, 401(k), IRAs, Roth IRAs.
LONG TERM, HIGHER RISK: long term bonds.
If you’ve decided that you’re ready to start investing, you’re already well on your way. Add action to that determination, and you’re ready to get your money growing.