How to take advantage of compound interest - smart ways to invest

Investing:  When is the right time? 

Some say investing early means more monetary benefits, while others say it is not worth the risk. Millennials are known for avoiding financial risks, including investing. However, there may be benefits, especially starting at a young age. If you are looking into putting your money into the stock market, start by doing research, and then weigh the potential risks versus the potential benefits.

One of the first steps is to evaluate how much money you have to start investing. A general rule of thumb is to never invest money you can't afford to lose. Also to consider is the cost of student loans. First decide how much money you have to invest. Then determine how you want to invest, and if you can afford to invest. This article explains 6 smart ways students can invest $1,000.

Investment options for students:

1. Savings accounts are a secure "investment" option for college students. Every student should set aside an emergency fund, before any conventional investing. Savings accounts are the most basic way to save and invest money. Savings accounts at a credit union are insured against loss caused by failure of the savings institution by the NCUA.

2. Stocks are shares, or part-ownerships, of a corporation. Once purchased, the value of the stock changes depending on how well, or poorly, the company is performing. The value of stocks is determined by the profits received divided by the number of shares in the company. Stock market investments are risky. It requires more money to do well in investing in individual stocks, and they are not insured.

3. Bonds represent an I-owe-you from companies or governments. Bonds are less risky because the interest rate and maturity date are determined before the transaction is made. Bonds are more secure than stocks. The company must pay off its debts, like bonds, before the profit is divided among shareholders. Bonds, however, do not return high amounts of money.

4. Mutual funds can be a happy medium between stocks and bonds. Mutual funds are investments in multiple stocks to which people contribute monetarily for a share of the overall value of the investments. It's like roommates combining money to buy groceries and then splitting the items purchased. Mutual funds enable diversification, which decreases the associated risk. These funds are not insured, but typically earn more than bonds, but are not guaranteed. Fees to purchase can significantly reduce earnings.

A few pros and cons should be considered before you decide to invest.

Pros of investing:

Early investing can be good because the compounding interest of investments is beneficial when people start young. Starting young can make a significant difference in the amount of money you earn over time.

Younger investors have a tremendous advantage working in their favor - time. Just investing a modest amount of money today can lead to big returns down the road, says Howard Dvorkin, a certified public account and founder of Consolidated Credit Counseling Services.

Potential for high return rates, liquidity and stability.

Cons of investing: 

It is possible for students to lose money with an investment. It may be wise to wait. Especially with increasing tuition, losing money is not worth the risk.

With stocks, prices may rise and fall, and there is no guarantee of return.

Fluctuations in interest rates make your return amount unpredictable. 

Happy Investing!

Mallory

Sources:  

http://www.huffingtonpost.com/mybanktracker/6-smart-ways-millennials_b_6056446.html?&ncid=tweetlnkushpmg00000067

http://moneymix.cuna.org/18928/article.php?doc_id=4885