Investing is the part of financial management that has always posed an issue for me. One, it's complicated and two, it can be risky. When it comes to money, why would you want to be a part of something complicated and out of your control? Yet, seemingly, many financially secure people do invest their money. In fact, investing is something that all of us should consider.
The bottom line of investing is that it can help you gain financial security. There are different levels of risk involved with different investment options. Knowing the basics, forming an intelligent plan, and sticking to it, is all you need to do enjoy the benefits of managing your money. Few people stumble upon financial security, and most people can achieve it by saving and investing over time.
Why You Should Invest
Your money can work for you: It can earn money over time. You can lend your money while you are paid interest, and then your money is repaid to you later (bonds). Or, you can purchase a share in a company to then be paid profits from that company on a regular basis (stocks).
You can purchase something that will increase in value. You can become an owner of something that you anticipate will increase in value over time. When you want to sell it, you hope that someone else will pay your more for it (ex: real estate).
Compound interest is a powerful concept in investing. It is the accrual of interest on interest. Basically, you can earn more at faster and faster rates as your money grows. Picture an exponential growth chart...That is your money over time. Compound interest builds faster over time, so the earlier you start, the better.
Where do you start? Answer these questions:
- Why am I investing?
- What are my financial goals?
- Am I willing to take big risks? Or, am I cautious with my money?
- How much can I afford to invest each month? How much am I willing to invest each month?
- What am I unsure of and what other questions do I need to ask?
- Should I get help from a finance professional?
- What type of investment is right for me?
The best place to start is with the basics. Start by learning about the different types of investments available. You may have heard of bonds, stocks, and mutual funds, but there are many more options, like CDs (from your credit union), Money Market Accounts, or your retirement fund. Learn more about what's out there. Usually, the safer options yield lower returns, but if you're conservative with your money, asking your credit union about their Certificate of Deposit options, or even higher interest-earning accounts, can be a good choice. Always make sure you are clear before making a choice.
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