Investing: Where should you start?
In order to learn how to get started investing, you need to understand the concept first. Investing is when you put your money toward something with the expectation that your money will grow over time. Basically, you’re using your money to make more money. There are a lot of different ways to invest. Let’s take a look at some different options:
Certificates of deposit or share certificates
Certificates of deposit (also known as share certificates in the credit union world) pay higher interest rates than your basic savings account – in exchange for your commitment to leave money invested for a certain amount of time. The interest rates paid usually increase when you agree to invest the money for longer periods of time. And, the FDIC (for banks), NCUA (for credit unions) or other similar agencies insure these certificates so you are sure to get your money back.
Bonds are loans you make to a business or government. Issuers of bonds can default on this loan, but the expectation is that high quality bonds will pay you income over time and pay back your original investment in the future. Bonds usually pay higher interest rates than certificates of deposit and share certificates.
Stocks are shares of ownership in a company. You can make money in two ways when investing in companies. Some companies will pay income to you on a regular basis through dividends. The rest of the return comes from the price of the stock rising (or falling) over time. You don’t actually make or lose money until you actually sell the stock, though, and compare it to the price you originally paid for it.
A mutual fund is a type of investment that pools together money from many individuals and invests in a wide range of stocks, bonds and other investments. An investment manager purchases and monitors the investments inside the mutual fund. Mutual funds charge fees that are used to pay your fund manager for managing your money.
Are you a risk taker or not?
There’s no such thing as a guarantee when it comes to investments. Every investment contains some risk. The market has periods of gains – often followed by periods of declines. No one knows what will happen in the days, months and years ahead.
So, before you put your money in any type of investment option, it’s important to think about how much risk you can afford to take – financially and personally. Talking to your family and an investment professional can help you figure out how you feel about risk.
Regardless of your appetite for risk, mixing the types of investments you own can help even out the ups and downs of the market. Certificates of deposits are typically known for having a low amount of risk, mutual funds and individual stocks are known for being higher in risk, and bonds are somewhere in the middle. But if you diversify your investments, you’ll be better prepared to handle shifts in the market.
How to get started
If your employer offers a retirement plan – like a 401(k) or 403(b) – take advantage of it. Even if you can only put in a little bit of money at first, that money will be invested for you – and if you invest well, will grow over time.
If you’re thinking of doing your own thing, keep in mind that investments can be complicated and confusing. There are fees that you’ll need to figure out, plus there are a lot of different ways to invest. On top of that, you might also want to think about whether or not your investment choices are making a positive or negative impact on the world around you. There’s a lot of information available online – but it can also really help to talk to a professional who understands all the different investment options and help you figure out the one that’s right for you.
Elise Romero of Goshen, Indiana, contributed to this article. Elise interned at Everence® during the summer of 2016 and is a member of the Eastern Mennonite University Class of 2017.
Under FDIC or NCUA coverage, if a bank, savings association or credit union fails, each depositor generally is insured for at least $250,000 for non-retirement deposit accounts, and up to $250,000 for IRA and certain other retirement accounts.
Risks: Bond funds will tend to experience small fluctuations in value than stock funds. However, investors in any bond fund should anticipate fluctuations in price, especially for longer-term issues and in environments of rising interest rates.
Risks: Although stocks have historically outperformed bonds, they also have historically been more volatile. Investors should carefully consider their ability to invest during volatile periods in the market.
You should consider the fund's investment objectives, risks, and charges and expenses carefully before you invest. The fund's prospectus contains this and other information.
This information provided is for educational purposes only and should not be considered as offering specific tax, legal or investment advice. Please consult with a professional regarding your individual circumstances.