Financial Literacy: Investing for Beginners
Happy Financial Literacy Month from Leading Edge Credit Union!
When I was growing up, my high school math teacher would tell us, almost every day, “You had better start investing. Future you will say a BIG thank you.” However, my only thoughts were, “I don’t know where to start” and “I don’t have any big money to invest with.” Listen when I tell you, investing can be confusing, even as an adult, but that doesn’t mean it isn’t worth it. Let’s cover some of the basics to investing.
What you’ll learn:
- Important Vocabulary to Know
- Why should I invest?
- How do I start?
- Final Tips
Important Vocabulary to Know
- Investing – Investing is when you put your money into something (like stocks or bonds) with the goal of it growing over time, so you can make more money later.
Why should I invest?
Investing is all about the long game. It helps you grow and build your wealth overtime, thus achieving long-term financial goals like buying a home, or retirement. It can also help you beat inflation by staying ahead of it. What I mean by that is over time, inflation decreases the value of money, meaning it buys less than it could before. Investing can offer higher returns over the long term compared to inflation. Take the stock market for example. The stock market can have its ups and downs, but companies grow in value over time, so if you are invested in that company’s success, your money will grow right along with it.
How do I start?
A great place to start is by first determining what you want to save for and whether that is a short-term or long-term goal. Second, start learning the difference between investment types and decide which one(s) match your goals and the level of risk you want to take on. Some common types of investments to start with are stocks, bonds, mutual funds, and real estate.
- Stocks are a small piece of a company that you can own. Stocks can increase or lose value depending on the value/success of the company.
- A bond can be thought of as a loan you give to a company or the government. In exchange for that loan, they pay you interest over time, and you get your principal, your original money, back when the bond matures.
- Mutual Funds are a collection of stocks and bonds (potentially other investments as well) that are all pooled together. Most people would suggest this as a great starting place as they provide diversification (a variety) by investing in multiple kinds of things. So say if you invest in a couple companies, and one doesn’t do well and the other thrives, you don’t lose all of your money with the company that isn’t successful.
- Exchange-Traded Funds (ETFs) are similar to mutual funds but they are traded like stocks on the stock market exchange. One benefit to them is that they are often lower in cost and provide a little more flexibility.
- Real Estate is pretty self-explanatory. You can invest by buying property either to rent it out and gain extra income, or for long-term appreciation as real estate typically becomes more valuable over time.
Some apps that are recommended for beginners are Acorns, which uses your spare change to invest, Robinhood, and Fidelity Investments. All three have websites as well as free apps so you can invest on the go.
I know it’s a lot of information, but trust me, future you will thank you for putting money away now. If there is anything that I hope you take away about investing, it would be these three points:
- Start Early. The earlier you start investing, the more time your money has to grow. This process is the result of compound interest. Even if you start small, it all adds up. Time is on your side when it comes to investing.
- Start by investing in things that aren’t too risky, like index funds or mutual funds. These are made up of many different stocks, so they’re less risky than putting all your money into one single company.
- Learn Continuously. Investing is something you can always learn more about. Don’t be afraid to ask questions. The more you learn, the better you can make smart decisions about where to put your money.