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Investing For Beginners

Thinking about investing but don’t know where to start? You’re not alone. Investing can seem like a whole ‘nother world, one that’s only for those who are wealthy or daring – or both.

But investing isn’t necessarily the insider’s club you might imagine it to be. Truth is, investing can be one of the easiest ways to earn passive income, meaning you can make money without putting in any extra hours of work. And, yes, there’s a learning curve, but it’s not so steep that you’ll be overwhelmed and feel under pressure. Once you establish your own investment portfolio, you’ll find it takes relatively little management to see significant returns:  The average investor has seen 10% growth annually over the last hundred years.

Here are some basic guidelines that can help you get started on the path to your investment goals. By learning the ins and outs of investing, there’s a good chance you could find yourself in the money.

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Types Of Investments

In a nutshell, investing is spending your money on something, such as the stock market or buying a share in a company, in the hopes that its value will grow over time. If the investments increases in value, the investor can sell the item or items and earn a profit in return.

There are four types of investments (asset classes): stocks, money market or cash equivalent investments, fixed-income investments like bonds, and property, including real estate and other tangible assets.

If you’re looking to invest in the stock market, you can expect to buy shares, or fractions or ownership, of publicly traded companies. If the company performs well and earns a profit, the shares increase in value. But the opposite can also occur:  If a company doesn’t perform well or is impacted by a market downswing, the shares will decrease in value and investment money could be lost. Mutual funds and exchange traded funds (ETFs), which are pre-built pools of investment options, are also part of this asset class.

Money market or cash equivalent investments are highly liquid, meaning they can be quickly converted to cash. Certificates of Deposit (CDs) and short-term debt securities belong to this asset class. Although investments in these types of products offer relatively slow growth, they’re considered low-risk investment vehicles.

Fixed-income investments, including bonds, offer a prearranged, fixed interest rate, and usually pay at regular intervals or after a set amount of time has passed. When you purchase a government bond, in actuality you’re giving the government a loan, which it agrees to repay after a certain amount of time (the bond’s “maturity”) at a set interest rate. Bonds are considered a safer investment than stocks as their worth is not impacted by shifts in the market or the economy.

Property investments, like real estate or fine art, can appreciate (grow) in value over time. Depreciation of property investments can occur, especially when a tangible asset loses value over time. For example, cars, SUVs, and trucks can lose as much as 10% of their value annually.

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How To Get Started

Money may not grow on trees, but it can grow with the right investments. The following guidelines can help you dip your toe in the investment pool when you’re looking to multiply your money.

Because investing your money comes with some risk, you’ll want to research the different investment options. Whether you’re looking at stocks, bonds, mutual funds, or other types of investments, learning about each asset class and the history of return rates can prove invaluable. If you’re looking to do as little research as possible, consider opening an account with a robo-adviser like Acorns or Stash.

Decide which type of investment account best fits your needs – and your budget. Consider the financial timeline you have in mind, as well as plans for your future. A workplace 401(k) is a great way to get started, especially if  a percentage match is offered by your employer. Your contributions will be deducted directly from your wages and are tax-deductible. You might also consider investing in an IRA, which allows you to make tax-deferred contributions that can help lower the amount of income tax you pay today while building an account you can tap into for your future retirement.

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Open A Brokerage Account

You can choose to hire a full-service brokerage account, like Morgan Stanley, that’s staffed by investment advisers who will allocate your assets and manage your account for you. But hands-on – and ongoing – advice comes at a cost, usually in the form of a percentage of your assets under management (AUM). Brokerage firms may also require hefty minimum account balances, which might mean you need to make a significant initial deposit.

Robo-advisers offer an alternative to standard brokerage houses. They use computer algorithms, backed by human research, to create and manage client portfolios and are able to offer investment services at a significantly lower fee than a human investment adviser.

A DIY brokerage account like TD Ameritrade offers free accounts with low or no account minimums, but you will be expected to pay for trade fees and commissions on any assets you buy or sell, and to conduct research to determine if those trades good.

Last but not least, investment apps, like Acorns and Stash, make it surprisingly easy to invest right from your cell phone, and generally don’t require a large cash investment to get started.