Investing 101: Where to Begin and How to Diversify
Disclaimer: This blog is for informational purposes only and is not investment advice. Please consult a licensed financial advisor for guidance tailored to your individual circumstances.
In recent years, investing has become more accessible to the general public. What was once believed to be a financial move reserved for wealthy individuals and business owners has become more commonplace for the average person. While you may understand that investing is a smart way to grow your money and secure your financial future, you may not know where to begin. Investments can be complex, so it’s normal to feel overwhelmed or even confused. The Financial Industry Regulatory Authority (FINRA) is a good resource for doing your research on different investment accounts and products. For now, here’s a simple beginner’s guide to help you become familiar with the topic of investing:
Start Small
Contrary to popular belief, you don’t need to have a large sum of money to get started investing. It’s possible to start small, and it can even be helpful for beginners. There are many investment products (securities) available at different prices; it’s not hard to find something that fits into your budget. For example, mutual funds and exchange-traded funds (ETFs) can often be found at affordable prices. Plus, many brokerage firms allow you to invest in fractional shares of stock at a lower price than a full share.
Start Now
The important thing isn’t how much you invest; it’s when you start and how often you make contributions. As a general rule, when you begin thinking about investing is a good time to start. Just like you automate your bill payments, you can set up automatic transfers from your bank account to your investment account. Remember, you can start small, but the key is to be consistent. If you want to increase how much you invest, do it over time after you’ve freed up funds elsewhere, like paying off debt. AutoPayPlus can help you manage your loan payments by setting you up on accelerated biweekly payment plans, allowing you to pay off debt faster so you can invest more money sooner.
Figure Out Your Goals
Now that you understand that anyone can invest, no matter how much or how little money they have, it’s time to consider your investment goals. While some may be investing to save for retirement, others may do it to save for a large purchase like buying a home. Many start investment accounts to save for their children’s college education, and some want to generate additional income. There are many reasons why someone would want to start investing. Whatever your goals are, make sure to keep them in mind as you research accounts, securities, and different strategies.
Research Investment Accounts
Some people think investment accounts exist in a single category, but there are many types of investment accounts to choose from, each with distinct features and benefits. For example, if your goal of investing is to save for retirement, 401(k)s and individual retirement accounts (IRAs) are many people’s preferred options, since they offer various tax benefits. If your goal is simply to invest for general purposes, like generating additional income, an individual brokerage account offers a lot of flexibility, including no contribution limits. Every investment account has unique benefits and nuances, so it’s important to do your research and choose one that matches your specific objectives.
Understand the Different Securities
Along with different retirement accounts come all the different types of investment products, or securities, that you can purchase. Investing in various types of securities diversifies your portfolio and helps you manage risk. You’ve likely heard of stocks and bonds, but there are many other securities you can invest in. Each one functions differently and has its own potential return and risk. The Financial Industry Regulatory Authority (FINRA) is a great resource for researching the different types of securities.
Here are some of the most common securities that those starting out tend to gravitate toward:
- Stocks: You own shares that represent ownership in a company. The main feature is that they can pay dividends or yield capital gains.
- Bonds: Your investment is essentially a loan that you make to a corporation or government that promises to pay you back plus interest. The appeal is that it’s a type of fixed-income security that pays you regular interest payments until your principal investment amount is paid back to you on the maturity date.
- Mutual funds: Your money is pooled with other investors’ money. That money is then professionally managed by a fund manager who invests the funds in a variety of other securities (like stocks and bonds). Mutual funds do not trade throughout the day, like stocks and ETFs. Instead, they trade once a day at market close. Diversification is a major benefit.
- ETFs: ETFs are a type of investment fund (like mutual funds) that hold a collection of assets and trade throughout the day like stocks. When you buy an ETF, you’re buying a share that represents the fund’s underlying assets. Diversification and low management fees are the main appeals.
Note that this is not an exhaustive list, and there’s much more information about the few securities listed here. The FINRA website is a good resource for research, or you can also reach out to a financial advisor for more information.
Research Investment Strategies
Once you have a basic understanding of your goals and the different securities available, it’s time to think about your strategy. There are several investment strategies, but they’re all based on factors like your goals, your timeline, and your risk tolerance. A strategy generally involves how you allocate your assets, the types of securities in your portfolio, and how often you review and adjust to ensure it remains in line with your goals. Take some time to think about your investment goals and risk tolerance, then do some research to determine which investment strategy makes the most sense for your needs. It may be worth reaching out to a financial advisor for guidance.
Regardless of your goals or financial situation, investments can be a powerful tool. You don’t need to know everything about investing or have a large chunk of money to get started. With this basic knowledge, you’re ready to take the next steps in securing your future. AutoPayPlus is here to support you on your financial journey with accelerated debt payment plans, credit monitoring, and budgeting tools. Visit our website to learn more about our services or make an appointment with a Payment Concierge to get started!
