Wednesday, May 8, 2013

Basics of Investing: It's easier than you think!

You have to start somewhere. There's no line for learning how to invest though.

Read this if: 

1) You are interested in understanding basics terminology and processes of investing. 

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When I first started looking into this stuff, I was completely overwhelmed. Even after reading some books and articles, I still felt like if I didn't know 100% what I was doing, then I would make a catastrophic mistake and I would lose all my money forever and ever. (There are circumstances you can't control, but in general, this is not very likely). 

Let's talk about a couple things you should know, and hopefully by the end, you'll feel more confident in starting the process.

Where To Invest

Basically, you just find a personal investing service that has a good reputation and explore their website. Vanguard and T. Rowe Price, two of the best in the financial world for personal investing, are good places to start. 

What To Invest In 

For people in their early twenties, there are two basic options: individual stocks, or mutual funds. Mutual funds are where a bunch of people put their money into one pot (hence, "mutual") and that money can then buy shares of all sorts of different companies. It's safer because if one company all of sudden fails financially, the other companies in the fund will help offset the loss. 

With mutual funds, you want to look for ones with the lowest fees, or a low "expense ratio." The lower this is, the more of your money you get to keep. 

How Much To Invest

I'm catering this blog to young adults - especially college students. I understand that you might not have much money to spend in investments. But if you have enough to comfortably cover your housing, groceries, tuition, and books, then you should definitely consider investing some of what's left. Even if it's ten dollars a month, or just ten dollars, some is better than none. 

Just kidding, some personal investing services require minimum deposits of $1000 or more. Look for a service that is in your reach if you can't afford to deposit $1000 right away. 

How Long To Invest 

Time is your best friend. The longer you keep your money in the thing that you're investing in, the better the results. I'll go into detail in a later post, but there is so much truth to the saying "Time heals all wounds." If your stocks drop in price, holding it is better than selling it at the low price - the trend of a stock over 10 years is almost always up. 

How You Get Money From Investing 

Let's say you invest $50 in a mutual fund. Over time, it grows to $63.42. The extra $13.62 came from "capital gains" and "dividends," which are "given" to you by the companies you invest in when they make money. (This is very, very, very, simplified). You can choose to reinvest your gains (so it's automatically used to buy more shares) or to transfer any gains and dividends to your bank account. 

How To Actually Start Investing 

Pick a company, any company. Go to their website. Open an account. Pick something to invest in. Most companies have services online to help you if you have questions specifically regarding that company. 

Plan of Action: 

1) Look up Vanguard or T.Rowe Price or any other personal investing service. 
2) Look around their site, see what's out there. 
3) Follow the steps! It's so easy, they tell you how to do everything! 
4) Contact Joan with questions, comments, or suggestions! 

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Photo credit: joeduty via photopin cc

4 comments:

  1. I like your short and simple style. Keep it up!

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    1. Thanks for taking the time to let me know! I really appreciate it. :)

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  2. Hmm, I posted a question in the other one related to mutual funds, but I see you answered it here. I was just always scared - what if one of the companies I invested in suddenly crashed and I lost my investment in it? But I guess that's not too realistic...right?

    Also, what would you recommend about bonds in comparison to investing in stocks? When I was younger, I always liked the sound of those more since it seemed more secure.

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    1. 1) It is realistic to know that companies can fail you, but that's part of the risk and there's nothing we can do about it. That's why investors preach the "don't put all your eggs in one basket" thing, it's a way of protecting your money so that if one thing fails, your entire portfolio doesn't collapse.

      2) Bonds have less risk but also a lower return. I'm going to assume that since you're reading my blog, you're around my age (I'm 20). That means you have tons of time to recover from prices falling should you invest in the stock market. Historically, over a ten-year period, the general trend is up.

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