If Your New Year's Resolution Is To Start Investing, Read This
Now that you've worked hard to budget your bills and finances, perhaps you're ready to take the next big step — investing your hard-earned cash. For many, the concept of the stock market and investing can seem confusing and overwhelming. However, according to the BECU credit union, investing is a fairly simple concept. Essentially, investing occurs when you purchase financial assets like stocks, bonds, or shares in Exchange Traded Funds or mutual funds. Investing is different from simply saving your money because the amount that you invest could grow or decrease depending on multiple factors, including the strength of the stock market and of those particular stocks, bonds, or shares that you purchased.
Why should you start investing your money as soon as possible? Bankrate reports that investing as soon as you can ensures that you take advantage of compounding gains, or the interest that allows your money to earn money. The longer you invest, the more money you'll earn.
Before you begin investing your money, NerdWallet suggests coming up with a comprehensive investment plan. If your financial goals are more short-term, like five years, perhaps it's best to save your hard-earned cash in an online savings account, cash management account, or a low-risk investment portfolio. If you're looking to save money to reach a financial goal that is more than 20 years down the road, invest in stocks, which have the potential to yield greater returns the longer they are active.
There are multiple ways to invest your money
Given that every person's savings goal is different, it makes sense that there are multiple ways to invest your money. If you are looking to save for retirement, Nerdwallet reports that you can invest your hard-earned cash in a 401(k) or traditional or Roth IRA. You might work for a company that offers a 401(k), and perhaps even matches your contributions, so checking in with your employer about your 401(k) options is a good start on your investment journey. If you don't already have a 401(k), you can open a traditional or Roth IRA. If you're saving for college, you can also open a college savings account that offers similar tax perks to retirement accounts. If you have no clear goal but are still looking to invest your money, Nerdwallet suggests simply opening up a taxable account.
If you're truly new to the concept of investing, you'll want to invest your money using robo-advisors on digital platforms like Wealthfront, Betterment, and E*TRADE Core Portfolios that use algorithms to invest your money, per Investopedia. This option is great for beginners since it doesn't require you, the inexperienced novice, to make any real decisions about your investments. However, if you're feeling confident about your investing prowess, Nerdwallet reports that you can open your own brokerage account that allows you to buy and sell a variety of stocks, bonds, and funds.