Investing is putting your money into different assets such as stocks, bonds, mutual funds, cryptocurrency, NFTs, etc. There are a lot of ways to invest! But the goal is always the same: to grow your money. So, you buy a stock at $10, the price goes up to $15, and you now have $15 because you invested. By the time you’re 30, that stock could be worth $25,$50, or more.
One of the main growth drivers when it comes to investing is something called compound interest. This means that interest accrues on both the initial deposit and the accumulated interest from previous periods. So, to use the above example, if you buy a stock for $10 and it goes up to $15, then that stock goes up another 10%. You’re getting 10% not just on your original investment of $10 but on the extra $5 that you made initially.
“The funds that you invest will earn dividends and/or interest. If those are automatically reinvested, those, too, will earn dividends and interest,” explained Katelyn Bombardier, a certified financial planner, and financial advisor. “This process then repeats itself over and over again.”
A lot of people think you need a lot of money or need to spend a lot of time studying finance to invest. You don’t!
If you don’t know where to start, just start doing some research. Reading this article is already a great start! And don’t be afraid to ask for help, Bianculli said.
“Just try it out, even if it’s with $50,” Bianculli said. “You don’t need to buy a full stock straight up. It may seem intimidating at first, but try it out. Learn a little about it. There are a lot of resources out there, and try to learn a little bit of knowledge at a time.”
Ready? Here we go!
1. Decide how much money you have to invest
If you don’t already have a system in place for tracking your expenses, it’s important to set up a budget. Figure out how much money you make (after taxes), and how much money you have left after paying for basic expenses such as rent, utilities, phone, cable, food, etc. Figure out how much you like to spend on things like going out, clothes, or entertainment. Then, from what’s left, set aside a portion for savings.
Sun recommends prioritizing your emergency fund, which should include around six months of living expenses. Once you have a cushion in place, you can take some of your savings and start investing them.
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One thing you have to decide is how much risk you are willing to take. There are some investments that could make you a lot of money, but you could also lose a lot of money.
“You may say, yes, I’m comfortable with risk. Let’s go aggressive,” Sun explained. “But, if that aggressive decision means your $1,000 portfolio could drop to $400, how do you feel about that?”
Now, to be clear in that scenario, you never actually lose that $600 unless you cash out. If you don’t need that money (you should never be investing money you need for bills or other expenses), then you can let it ride and see if it bounces back.
But, if all of that makes you a little queasy, either 1) Don’t invest a lot in a risky investment or 2) Stick with less-risky investments.
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