By Andrew Housser
If you find yourself with a little financial cushion -- your debt is under control, your emergency savings fund is in good shape and you have a monthly budget plan in place -- you might want to look into investing and growing your money. People tend to use investments for long-term financial goals such as planning for retirement or paying for a child's college education. You do not have to bring in a certain income or have a set amount in savings before you can make investments. In fact, the earlier you start investing (regardless of how small the amount), the more time there is for the money to grow.
While the information here is not intended to serve as financial advice, it can help in understanding some of the basics about investing.
When you buy stocks, you are buying ownership in a company. While you do not participate in the day-to-day operations of the company, you can vote and express opinions on shareholder issues. You can profit when a company does well because your stock value will rise. (Of course, the opposite is true: When a company or the stock market does poorly, your stock can take a hit.) To buy stocks, you can synch your bank account with an online brokerage firm such as E-Trade or Ameritrade to purchase and sell stocks online. Alternatively, you can go through a broker and pay a commission fee. Or you can buy directly from a company. DRIPInvestor.com lists companies that allow direct stock purchases.
the long term, stocks tend to yield higher returns than other types of
Some stocks pay dividends, which can be used as additional income or to buy more shares.
the stock market is unpredictable, stocks should be considered a long-term
There is no guaranteed return on your investment. Stocks can fall dramatically during a bear market and wipe out your portfolio, or they can rise greatly during a bull market.
Many investors – novice and experienced alike – invest in mutual funds. With a mutual fund, your money is pooled with money from other investors, giving you a stake in a variety of stocks and bonds. A fund manager reviews the portfolio on an ongoing basis.
collection of stocks and bonds can be a good way to learn about the stock
market, generally carrying less monetary risk than a single stock.
An investment of $2,000 or less can get you a diversified portfolio for much less than buying individual stocks and bonds.
mutual funds are diversified, monetary growth can be slower and steadier than
In addition to management fees, you may pay fees at the initial purchase and then at the sale. This decreases the return on your investment.
When you buy bonds, you are basically acting as a bank and loaning money to a company or government entity. In return, the organization promises to pay you back the full amount with interest. The longer you loan money to a bond issuer, the more money you can make. Overall, bonds tend to have lower long-term returns than stocks or mutual funds. You can buy U.S. Treasury bonds directly from the federal government.
prices fluctuate less, and are more stable than stocks or mutual funds.
Certain bonds, such as U.S. Treasury bonds, can be quickly bought and sold without substantially affecting the bond's overall price.
sometimes default on bonds. They may fail to make timely payments on a bond's
interest or principal.
Bond prices fluctuate as interest rates rise and fall. This means you could get less than your original investment back if you need to sell a bond before it reaches maturity and interest rates have dropped.
Many people may find it helpful to talk to a professional when entering the world of investing. A financial advisor can help determine the best path to help you reach your short-term and long-term financial goals. If you do not have a financial advisor, your bank can be a good starting point.
Of course, the very best investment is to pay off debt – especially credit card debt. Once you are debt-free, investing is a good way to save for your future. To learn more about investing, visit the U.S. Securities and Exchange Commission's site, Investor.gov.
|Andrew Housser is a co-founder and CEO of Bills.com, a free one-stop online portal where consumers can educate themselves about personal finance issues and compare financial products and services. He also is co-CEO of Freedom Financial Network, LLC providing comprehensive consumer credit advocacy and debt relief services. Housser holds a Master of Business Administration degree from Stanford University and Bachelor of Arts degree from Dartmouth College.|
|INFORMATIONAL DISCLAIMER The information contained on or provided through this site is intended for general consumer understanding and education only and is not intended to be and is not a substitute for professional financial or accounting advice. Always seek the advice of your accountant or other qualified personal finance advisor for answers to any related questions you may have. Use of this site and any information contained on or provided through this site is at your own risk and any information contained on or provided through this site is provided on an "as is" basis without any representations or warranties.|
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