Investing 101: Getting Started
First and foremost, figure out your budget and try to eliminate unnecessary expenses. Knowing where your money is going is essential to a stable financial footing. You can use online tools such as Mint.com or create your own Excel spreadsheet to track your expenses. Next, make sure that you have an emergency fund to cover 3-6 months of expenses. This fund should be easy to access and relatively liquid so that you could maintain your lifestyle even if the unexpected were to happen.
Step 2: Set your financial goals
Now that you have established some financial security, you must determine your financial goals.
Step 3: Determine your ideal investment strategy
Long-term: High risk, high reward
At this point, you know what your goals are, so let your money make money! By investing, you are putting your money to work for you. The first important considerations in choosing a strategy are your age and time frame. If you're younger or a long-term investor (perhaps saving for retirement), you can take greater risks that provide the chance for better returns. If you plan to hold an investment for several years, volatility will not affect you as much because you can afford to withstand the ups and downs of the market. If you decide that a risky or more aggressive portfolio is right for you, focus on stocks, certain mutual funds and ETFs (stock or real estate funds), riskier bonds and alternative investments (options, forex, real estate, commodities).
Short-term: Less risk, more guarantee
On the other hand, if you need a more immediate return on your investment (such as putting a down payment on a house in a couple years), you cannot afford to take as much risk. You will want to select a slightly more risk averse portfolio with guaranteed returns in the near future. Additionally, you may want to choose a more diversified portfolio. This means that you spread your assets over a wider selection of investment types. If you want a more conservative portfolio, focus on cash investments (savings accounts, CDs, money-market funds), certain mutual funds and ETFs (bond funds), and short-term, high-quality bonds. Avoid any investments that would be affected by short-term market declines.
Step 4: Take action
You can now say that you have a general idea of which type of investments you're looking for, so get started! There are a number of options at this point. You may want to visit a broker, speak with other industry experts, set up an online brokerage account or continue to do research on your own. Remember that you're never too young or too old to invest, and the sooner the better. Finally, any amount of money can be invested. You don't need to have thousands or even hundreds of dollars set aside to invest. You can start small, and your money will grow over time.
For more helpful tips about investing, check out these articles:
What is investing? Interest, Inflation and Compounding
The Advantages of Investments
8 Principles of Investing to Help You Save Money Wisely
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