Luis Pazos 
Ever feel a bit…inadequate hearing about others’ financial successes? Think of the 28-year-old who made such smart investments she retired last year, or the teacher-turned-stock trader who keeps teaching just because he loves it, not for the paycheck. We could’ve done that, right? If they managed it, why can’t we?
A savvy investor is always looking for ways to turn current and future resources into a more secure future. Think of money like a gardener views vegetable seeds: with time and care, those seeds can grow into a vibrant, secure future for you and your family.
Why You Need To Invest
This might seem obvious, but it’s worth repeating: money invested should be money growing. Essentially, money + time = more money. Your money can increase in value even if you’re not constantly active with it. For instance, owning a home often counts as an investment, as properties usually appreciate over time. A savings account is another investment vehicle because banks pay interest on your savings, especially high-yield online savings accounts.
Moving Beyond Savings to Unlock Higher Earnings
Even top savings rates might not thrill some investors. Sure, it’s a good start, but relying solely on savings might not be enough for a smooth financial future. For example, if you deposited $10,000 in an online bank with 1.5% interest for 10 years, it would grow to $11,617.25. Better than nothing, but what if you earned 5% instead? That same $10,000 would become $16,470.09. Over 20 years, it could grow to $27,126. To earn more, you’ll need to explore more active investment strategies.
How To Start Investing: Top 7 Things You Need To Know
- Start Now and Start Small: Dive in as soon as possible, even with small amounts. There are plenty of apps like Wealthfront, Betterment, and Robinhood that require no initial investment.
- Understand Compounding Interest: The longer your money has to grow, the larger it can get. This is why compounding interest is crucial.
- Investing Isn’t Gambling Unless… It becomes gambling if you’re seeking quick returns on investments you don’t fully understand, like penny stocks or cryptocurrencies.
- Acknowledge That Inflation Is Real: Inflation reduces purchasing power over time, making investing essential to keep up with rising costs.
- Investing Makes the Rich Richer: Want to build wealth, retire early, or be financially independent? Investing is a must.
- Losing Money Is Unavoidable: Remember, every investor loses money sometimes. It’s part of the game.
- Don’t Get Emotional: Emotions can cloud judgment, leading to bad investment decisions. Stay calm and stick to your strategy.
Types Of Investments To Get You Started
- Bonds: Loan money to a company or government body, earning interest over time.
- Brokerages: Not necessary but useful for a big-picture investment strategy.
- Commodities: Tangible products like gold or oil; tricky to store but essential for diversification.
- ETFs: Pooled investments offering instant diversification.
- Mutual Funds: Similar to ETFs but bought through brokers and priced once daily.
- Options: Purchase contracts offering the right to buy or sell at specific prices.
- P2P Lending: Invest in borrowers through platforms, earning interest as loans are repaid.
- Real Estate: Buy property to sell later or rent out, or invest in REITs for pooled real estate holdings.
- Small Business Investing: Fund startups or established businesses either through equity (ownership) or debt (loans).
- Stocks: Buy shares of companies directly or through brokers and online platforms.
Set Aside Some Investment Earnings for Taxes
Tax laws can be complex, so consider consulting a tax professional. Remember:
- Taxes shouldn’t deter you from investing.
- You’re taxed on earnings, not account balances.
- Some government bonds are tax-free.
- Robo-advisors can help track what you owe.
Investing Specifically for Retirement
Start early to take advantage of tax benefits and compound interest. Options include:
- IRAs: Traditional IRAs offer tax-free contributions up to $7,000 ($8,000 if 50+), while Roth IRAs offer tax-free withdrawals.
- Employer-Assisted Funds: 401(k) plans and pension plans help you save pre-tax money.
- Annuities: Sold by insurance companies, these let you save income for later use.
- Social Security: Maximize payments by working longer, earning more, or delaying benefits.
Investing: Not a One-Size-Fits-All Activity
Everyone’s investment journey is different. Whether you’re investing for fun, income, or future security, there’s likely an approach that fits your style and goals. Start slow with bonds or mutual funds, or dive into faster-paced stocks or ETFs. Prefer guidance? Seek a broker. Want independence? Try robo-advisors. Find your path and stick with it for a stable future.
