There are plenty of stories out there of people who retired early and now live off their investments. Or you might hear talk from friends and family about how they’re investing in different markets with the hopes of seeing a big return in the future. If you’re reading this article, it probably means that all this investment talk has piqued your interest and got you wondering if investing is right for you too.
The toughest part of investing is getting started, especially if you’ve never done it before. In this blog, we’ll walk you through some of the basic investments that are typically good for beginners so you can get an idea of where to consider putting your money.
As a note, it’s always wise to work with a financial advisor or financial professional when investing your money.
High-Yield Savings Account
A high-yield savings account is a savings account with higher interest rates. When you’re borrowing money, high interest can be a bad thing, but when you’re saving it, the higher the better. Higher interest rates mean you generate more of a return on your investment each period.
Many banks and financial institutions offer some type of high-yield savings account to their clients. Keep in mind that your account doesn’t have to be with your bank. You can shop around to find the best rates and then open an account wherever that is.
Certificate of Deposit
A certificate of deposit — often called a CD — is similar to a savings account, except you can’t access it for a certain period of time. When you purchase CD certificates, you agree to certain terms with the financial institution to allow interest to accrue over a period of time.
For example, most CDs require a minimum investment and then stay locked for 5, 10, 15 or even 20 years. That means you can’t access the money you’ve invested but it is constantly growing within the certificate. After the period is up, you can cash out whatever balance you have on your CD.
Retirement
If you work with a financial advisor and are a young investor, they will likely advise you to first invest in your own retirement. This helps you set aside money so that you can continue living a comfortable life after you’ve stopped working.
There are lots of different ways to invest in your retirement, but the two most popular are a 401(k) and a Roth IRA. Your 401(k) usually comes through your employer. It’s a pre-tax account, meaning when you make withdrawals in your retirement, you’ll have to pay taxes on that income. A Roth IRA is an individual retirement account funded from post-tax money. So you don’t have to pay taxes when you withdraw.
Mutual Funds
Mutual funds are a good introduction to investing in the stock market because they’re not as volatile as stocks and are significantly less risky. Whereas with stocks you can see large gains and losses, with mutual funds you only gain. If the interest declines one month, you simply stay at your current rate instead of losing money.
The trade-off is that interest rates on mutual funds are rarely as high as with stocks. So although you have more consistent gains, they might not be as large. This is why mutual funds are more of a long-term strategy.
Stocks
Finally, there are stocks. Anyone can invest in stocks and there are a lot of platforms out there that make it easy for you to do it yourself. The key to investing wisely in the stock market is to give yourself time to see rewards from your investments. Don’t watch it too closely, just let the ups and downs resolve themselves over time.
Investing can be a fun way to build your savings account and set yourself up for future success. Consider these different types of accounts next time you meet with your financial advisor.
