Learning how to start investing is an exercise that almost always bears fruit, and you can start doing so in small or large doses.
That might be the best thing about starting to invest - you can start small, afford to make a mistake or two along the way, learn from that mistake, and apply the lessons you learn as a fledgling investor for the rest of your life.
The Benefits of Investing Early
It certainly pays to take that route, and start investing as early as possible.
According to a Provident Investment Management study, a 25-year-old who invested $5,000 annually until age 35, and invested zero dollars for the next 25 years, would have $615,580 by age 60 (at an average annual investment return of 8%.) That's a great return on only a $55,000 investment.
Now, take another 25-year-old who waited 10 years to start investing, and you start to see the real benefits of investing early as possible. At 35, this investor invests $5,000 annually for 25 years and earns the same 8% interest on the investment. By age 60, that $130,000 has done well, turning into $431,754 in total assets, But that's still well below the 25-year-old's haul, and without having to invest $5,000 annually for 25 years.
Making more money in a shorter period of time is a great benefit in starting to invest early, so get going as soon as you can. It only takes $100 a month to get in the game, and you can build up your investment contributions from there.
You can take more investment risk. The sooner (and younger) you start investing, the more risk you can take with your investments. On Wall Street, anyone will tell you that the more risk you take when investing, the higher your potential returns (that's why riskier stocks historically have earned more for investors than conservative bonds.)
By starting early, you can absorb any losses you incurred on a riskier investment, and still have time to make up ground. If you're 50 or 60, risky investment mistakes tend to have a larger impact on your portfolio, and the money lost is hard to recoup when you're so close to retirement age.
You benefit from compound interest. As the example of the 25-year-old versus the 35-year-old shows, compound interest (the interest gained and reinvested over time on an investment) keeps on growing as long as you keep investing. Compound interest enables your investment principal to grow over time, as long as you don't take the money out. The longer you keep investing and leaving the money alone, the higher your investment assets stack up.
The more money you invest, the higher your investment portfolio grows over time. Let's say you invest $300 monthly over the next 10 years, and get an average 6% rate of return annually. After a decade, you'd have over $48,000.
But if you doubled your investment to $600 over the same time frame and at the same 6% rate of return, you'd earn $183,451 on your investment. That's the beauty and power of compound interest.
You can retire earlier. You may not want to retire early, but if you do, starting to invest as soon as possible gives you the time you need to build the retirement income you'll need to call it quits early.
There is no shortage of individuals who started investing as early as possible, and made enough money to retire well before the traditional retirement age of 65.
Starting Your Investing
To start your investing campaign, it's helpful to take a disciplined outlook on the process. You're going to need to take a regimented approach, and generate some good financial habits, if you're going to invest your money successfully.
That means adopting the following disciplines.
Invest every month. To maximize any investment outcome, you're going to have to get used to investing regularly every month. That doesn't mean busting the budget and steering too much cash into your investments, but it does mean taking a suitable amount say 10% of your monthly income - and applying it to building personal wealth.
Get a savings account. Start with small steps, like putting a fixed amount into a savings account every week. Even $25 a week can net you $600 after six months in a savings account, and that's money you can use to invest and grow your personal wealth. Most banks offer interest on your savings account, as well, and you likely won't need a minimum deposit to open your account.
Use Acorns. To help kick start your investment campaign, go mobile and get the Acorns smartphone app. Acorns offers an interesting savings proposition. It takes the spare change from your credit and debit card spending and automatically steers it into a savings or investment account for you. You won't even miss the money and you'll have fun watching the money grow. Acorns has already accumulated $1 billion in total savings for its clients - and joining up puts you into the "automatic" investment game.
Take advantage of a workplace retirement plan. Chances are your employer offers a company retirement plan like a 401(k) plan or individual retirement account. Take full advantage of these plans and have money deducted from your paycheck and rerouted into a company retirement plan. Such plans invest in stocks, bonds and funds, and companies often match your contribution, dollar for dollar, up to a specific contribution level (like 3% of your annual contributions.) That's free money and there's no better way to invest than with free money.
Owning stocks gives you part ownership of a company. Stocks are traded on major exchanges like the New York Stock Exchange and on NASDAQ. Stock prices can be volatile, but historically, stocks have proven to be one of the best investment vehicle available to the public.
Bonds. When you invest in bonds, you're essentially loaning money to a corporation or government entity, which will be repaid in a specific time period, and will also be repaid with interest. By and large, bonds are a more conservative investment than stocks, and offer less risk to investors.
Funds. Mutual funds and exchange-traded funds are baskets of stocks and bonds, bundled together in a single fund. Usually, a fund is constructed to invest in a certain investment category, like domestic stocks, international stocks, or corporate bonds.
Bonds can be purchased as government bonds through the U.S. Treasury or via a bank, broker or dealer. Corporate bonds can also be purchased from brokers and dealers - start with your favorite investment firm to get the best results.
Maximizing Your Investment Strategy
Your investment strategy is best constructed with the long-term in mind. Thanks to compound interest, money keeps growing and growing as long as you keep the money invested and don't take it out.
Stocks are generally the best way to grow your investment assets, but they do come with the risk of the stock (or the stock fund) declining in value. Mostly though, stocks appreciate over time and are regarded as a relatively stable investment vehicle.
Bonds offer less risk and less return than stocks. According to industry figures, bonds have averaged over 7% in annual returns from 1980 to 2017, while stocks have returned over 12%.
Stocks, bonds and funds aren't the only way to invest your money but they're the easiest and most effective investment vehicles you can choose on an everyday basis. You can also invest in hard assets, like gold, silver and oil, or even invest in collectibles, like comic books and coins.
Those investments require special expertise, and also offer more risk and volatility than stocks and bonds.
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