FIRST INVESTMENT FOR BEGINNERS
REMINDER BEFORE YOU INVEST :
- Does my emergency money exist? Investments do not include an emergency fund.
It serves as a financial buffer between you and unforeseen costs. You should first strive to have at least $1,000 in an emergency fund. However, you should aim to increase that money over time to cover three to six months' worth of spending.
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- Do I owe money at a high interest rate?
Holding high-interest debt might also prevent you from saving and reduce the returns on your investments (and then some). Even if you have access to a 401(k) match, it is acceptable to save for retirement and pay off debt at the same time. However, you should be aware of whatever debt you are currently carrying while thinking about potential first investments.
What's Most Important to You?
Of course, a perfect investment would give all of them. Your principal would increase, it would be absolutely safe, and it would give you enough income to keep up with inflation.
There is no such thing as the ideal investment. Consider the financial world as a triangle instead. As you move toward one corner of the triangle, you move away from the other two.
If you want a safe investment, you have to be willing to accept less income and growth—as defined by the market value of the investment. If you want an investment that produces a consistent income, you have to understand that it will not grow much. If you want an investment that grows, you have to be willing to accept less safety.
- A mutual fund
Investors who may not be able to readily put together a portfolio of stocks, bonds, or other assets on their own have the opportunity to do so through mutual funds.
- ETFs
While exchange-traded funds, or ETFs, fluctuate throughout the day like stocks do, they differ from mutual funds in that they own a basket of securities. The minimum investment for ETFs is lower than that of mutual funds, which is normally a few thousand dollars. ETFs can be bought for the price of one share plus any applicable fees or commissions, though you can start off with much less if your broker supports fractional share trading.
In tax-advantaged accounts like 401(k)s and IRAs, mutual funds and exchange-traded funds (ETFs) are excellent investments.
- Individual stocks
The riskiest investment strategy we've examined here is purchasing individual company stocks, but it may also be one of the most lucrative. However, you should think about whether purchasing a stock makes sense for you before you start making trades. Ask yourself if you understand the business you are investing in and if you are investing for the long-term, which is typically defined as at least five years. Because equities are priced every single second of the trading day, those who own individual stocks sometimes succumb to the short-term trading mentality.
However, a stock represents a portion of ownership in a legitimate company, and as a result, as time passes, both your wealth and that of the underlying business will increase. Instead, think about using the more diversified method provided by mutual funds or exchange-traded funds (ETFs) if you don't feel you have the knowledge or stamina to ride it out with individual equities.
What should you invest your money in?
For instance, that might be the ideal course of action if you have a moderately high risk tolerance as well as the time and willingness to thoroughly analyze specific stocks (and to learn how to do it correctly). Bond investments (or bond funds) may be a better option if you have a low risk tolerance but yet desire larger returns than you would obtain from a savings account.
Put your money in passive investments like index funds or mutual funds if, like the majority of Americans, you don't want to spend hours managing your portfolio. A robo-advisor may be the best option for you if you truly want to take a hands-off approach.
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