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Investing in financial securities such as stocks and mutual funds is a great way to build wealth and prepare for the future. However, only about half of all Americans own stocks or mutual funds, while the rest don't benefit from the long-term historic growth of the American stock market. There's no good reason to sit on the sidelines when it comes to preparing for your financial future. Here are some great tips that can show you how to get started with investing right away.
Do Some Research
Before you begin investing any money in the stock market, educate yourself. Investing in stocks and mutual funds is radically different from placing your money in a savings account at your bank. While you have the potential to earn significant returns on your stocks or mutual funds, there are no guarantees whatsoever; in fact, you could lose all the money you invest. Understanding the risks involved with placing your money in the stock market is critical.
Next, you should understand the types of securities that are available to invest in, and the differences between them. Stocks, for example, represent ownership shares of a company, while mutual funds are managed pools of money that invest in securities such as stocks, bonds, and other assets with the intent of earning a return on those investments. You should learn as much as you can about each of these types of investments before buying any of them.
Finally, you should learn how to evaluate potential investments in stocks or mutual funds as well. You'll want to know how the security is performing and whether financial analysts expect it to do well or poorly over the next year or so. Many different websites and services provide analysis of stocks and mutual funds; some are free, while others charge a premium. Find one that you're comfortable with and use it to start researching any potential investments, and keep track of how all the assets in your portfolio are doing.
Select an Investment Account
To purchase stocks, mutual funds, or other securities, you'll need an investment or brokerage account. There's a wide variety of brokerage account services to consider. In fact, your own financial institution may already be one of them. Large institutions such as Charles Schwab and USAA offer brokerage services in addition to the checking and savings accounts and other products on offer. Many other large financial institutions do the same, so check first before you scout out a new financial institution. Once you open an account, you'll be able to buy, sell, and manage your stocks and mutual funds with it, often through an app on your smartphone.
If you'd like a little more support with management of your investments, you could also consider opening a robo-advisor account. Robo-advisors use algorithms and other technology to help you automatically set and meet your investment goals. Wealthfront and Betterment are good examples of these types of accounts; they deliver automated portfolio management and investment advice without the intervention (or cost) of a human being. Robo-advisors typically ask investors a series of questions regarding things such as financial goals, budget, and risk tolerance. The algorithm-based robo-advisors then recommend a number of different investment options and asset allocation plans. Most financial institutions offer these services at relatively low fees, since the advice and support are based primarily on their automated systems and don't require actual human advisors.
Make a Plan
Once you open your brokerage or robo-advisor account, it's time to make a plan. You should first determine exactly how much money you have to allocate toward investing. The amount you decide to invest each month should take your overall budget into account, as well your long-term investment goals. When reviewing your budget, you should consider whether it's currently smart to allocate more money toward investments at the expense of other budget items.
In some cases, it may make more sense to place greater priority on other financial issues before you begin a major investment program. For example, if you have extremely high credit card debt, it may be a better idea to pay off those debts first; after all, the interest expenses you're racking up each month will offset any of the gains your stock investments provide if you don't start paying off those high outstanding debts.
Finally, prior to purchasing a single share of stock, you should determine the level of risk you're willing or able to expose yourself to. A bad day on the stock market can wipe out years of savings and investments, and there are no guarantees when it comes to stocks or mutual funds. Determine how much risk you're willing to be exposed to, and then plan accordingly.
Once you've done your research, opened an account, and made a plan, you're ready to go! Start buying stocks or mutual funds according to the plan you've made and the research you've done. Monitor your account regularly, either online or via a smartphone app. You should also use a website or othanother service to check the status of the companies or mutual funds you've invested in, and set Google alerts so you're notified anytime one of them is in the news.
Don't Wait too Long to Start Investing
It's never too late to start investing and the sooner you start, the better off you'll be. Investing early and often allows you to take advantage of the power of compounding interest, and it helps you turn your consistent asset allocations into real wealth over time. So, consider the advice offered here, and get started with investing right away!