To build real wealth start investing today! Grow your money and make it work for you! Investing in your future isn't as ominous and scary as it sounds, just make sure to read the basics before your get started.
You're not doing the most you can to grow your wealth for a better future if you just stick your money in a savings bank. Instead of just letting in earn a tiny interest monthly, consider investing in Mutual Funds, Stocks and more!
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Table of Contents
Before You Start Investing
Pay Off Any Credit Card Debt: If you have any credit card debt, then make sure to pay it off as these incredibly high interest charges of your debt will eventually eat your investments. The first thing to do when budgeting is to try to pay off these debt as they will only grow unless you try to pay them off quickly.
Have an Emergency Fund: Set aside funds for an emergency, such as car repair, medical bills and more. That way you don't poor all of your funds into investment and avoid the hassle of pulling them out.
Budgeting for Investment
Before you hop onto a train and throw your money at an investment, make sure to budget how much you want to invest. An investment budget should be part of your household budget along with groceries, bills and car payments.
Find your current goal and calculate how much you'll be able to fit with your budget. Never throw your whole savings account into an single investment.
Diversify You Portfolio: Just in case one investment goes bust, make sure to diversify your portfolio with other investments. Hold an ETP or low-cost mutual funds, which holds your portfolio of individual investments so you can easily track them all together.
Invest in Different Asset Classes: Invest in international stocks, domestic stocks, bonds, and money market accounts. Each of these assets have different risk levels, depending on what the market environment is. In addition to having different asset classes, make sure your investments also aren't necessarily from the same place.
For example, you could purchase diversified stocks from a bunch of different companies from Country X, but if Country X has a economic downturn, all your “diversified” stock will lose their value.
Types of Investment
Stock: These are a direct investment into a company. You should research and read about the company and see if there's any current news about it. Stocks can go up and down quickly. With this you can earn yearly dividends.
Bond: Bonds are a debt issued by the government or company. The company takes out a certain amount of your money and agrees to pay you an interest rate for a period of time. This is technically less risky than a stock but you'll reap the benefits slower and theirs a chance a company could “default” on their debt.
Mutual Funds: This is a collection of stocks or bonds. It diversifies your investment by investing in several to hundreds of companies. It reduces the risk of your investment because if one company takes a downturn, the others will still be fine.
ETF (Exchange-Traded Fund): An ETF is similar to a mutual fund in that it is a collection of stocks or bonds. But it trades like an individual stock throughout the day.
Index Fund: This is a mutual fund or ETF that tracks an index of investments. And index is for a large group of either stocks or bonds to help the investor understand the overall market performance.
401(k): A 401(k) is a retirement savings plan sponsored by an employer. It helps you save for retirement by automatically setting aside money from your paycheck into a retirement account. Some employers will even match your contribution up to a certain percent, which is essentially “free money”.
The great thing about a 401(k) is that your money in your 401(k) will not be taxed until you take it out of the account, which will usually be when you're retired and when the tax bracket will be the lowest. Please note that there are limitations to how much access you have and how much you can contribute.
IRA (Individual Retirement Fund): An IRA is an account that comes with tax benefits like a 401(k) but there is a limit of how much you can contribute. Additionally, there are different IRA accounts such as a Roth IRA.
A Roth IRA are contributed to with money that is already taxed and is only available to people earning below a certain annual income or who take advantage of special conversions.
A traditional IRA doesn't pay taxes upfront but taxes your earnings after you first withdrawing. When changing jobs and taking your 401(k) preceding, you can use a Rollover IRA to maintain the tax breaks on your 401(k) account.
There's no need to throw yourself into investments right away, take your time and do your research. If you're planning on playing stocks, make sure to research into the company you want to invest in. Don't forgot to diversify your portfolio. Additionally, if your workplace matches how much you put into your 401(k), then try to maximize it as much as you can.
You're never too young to start investing, so make sure to read through and try to learn as much as you can. We hope we help you with the basic understanding on investing. Check out ways to Make Money Online, here on HMB!
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