If you’ve been thinking about investing in the stock market, this is the perfect time to get started.
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Money-wise solo preneur
This book gives you the essential guide to easy-to-understand tips and strategies to achieve greater financial success.
May 7, 2021
5 min read
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Let’s say you received a $ 2,000 bonus in January and put it in your savings account. By the end of 2020, you would have the same $ 2,000 plus the 0.01% interest earned, which is a Standard rate with traditional savings accounts. Let’s say you’ve invested the same $ 2,000 in an index fund like the Schwab S&P 500 (SWPPX). Your total annual return in 2020 was 18.39% – which means that $ 2,000 is now worth $ 2,367.80. You just made $ 367.80 without doing anything.
Connected: How to start investing
Investing for Beginners
1. 401 (k) s and Roth IRAs
You’ve probably heard of a 401 (k) and Roth IRA. Many employers offer their full-time employees a 401 (k) plan. Some even have employer match programs. These types of investments are usually considered to be very safe because they are long term investments. Since these are retirement accounts, you should only invest in these accounts if you are happy to have your money locked up until the age of 59 ½. Early withdrawal leads to fees that are rarely worthwhile. If you have an employer offering a match program, you should start investing by aiming to earn the full match. Otherwise, only free money will be wasted. If you contact an employer, you likely don’t have a minimum contribution.
2. Investment funds and index funds
Mutual funds are less risky because of their diversity. This means that even if a market sector fails (e.g. energy or healthcare), you won’t feel the effects as much. Your mutual fund will also be invested in other areas (such as information technology and real estate), and these areas can thrive. Investment funds are professionally managed so there is a fee. However, you can choose an index fund, which is a type of mutual fund, to get lower fees. Index funds follow certain stock market indices such as the Schwab S & P 500 mentioned earlier. Since they follow a certain stock market index, professional management is no longer required.
Bonds are segregated from the stock market. Instead of investing in stocks, you are actually investing in a company or government entity and giving them a loan with a promise to earn interest. Bonds come with terms so you know exactly what you’re getting back and when. Because the risk is lower, you will also get fewer rewards than with other types of investments.
4. Individual stocks
Investing responsibly in individual stocks takes a lot research. Individual stocks can be volatile. Therefore, find out about the company, its history, its future direction and its competition before investing. To get started, you need to open either a brokerage account or an account with a robo-advisor. While they both charge fees, a brokerage account gives you a hands-on approach while a robo-advisor does more for you. You can also try an app like Robinhood which allows commission free trading.
5. Real estate investments
Stocks and bonds aren’t the only things to invest in: real estate is a huge market with lots of investors. If you don’t want to deal with a landlord’s duties, you can invest in REITs – Real estate investment fund. With REITs, you invest in a company that owns commercial real estate. You can also try renting a room in your home on Airbnb – this is a great way to raise capital for future investments. To buy a property, you need to save some money, though not as much as you might think. If you took advantage of one FHA loansyou can even reduce it by only 3.5%. All you need is $ 7,000 for a $ 200,000 home. This FHA loan allows you to purchase a residential home of up to four units. You must reside in one for the first year of ownership as per FHA loan requirements. Then, if you rent out the other three units, you will get enough capital to pay off the loan and a few more.
Investing for beginners depends on three things: your level of comfort with risk, your schedule (long-term or short-term), and your starting capital. Take some time to map your specific situation, then create a plan of action. What type of investment is best for you? What are your long-term financial goals? Regardless of your circumstances, there is an investment opportunity for you.