How to Invest Your Money

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You might be interested in investing your money to help your future or your family’s future. There are different accounts to learn, lingo to adjust to, and important information that can determine the outcome of your investments. Here are 9 easy steps to get you started:

  1. Decide how much you want to invest
  2. Start with your 401K
  3. Automate investments
  4. Keep it simple
  5. Know the risks
  6. Decide if you’re investing for retirement or something else
  7. Educate yourself
  8. Look for low-fees
  9. Create small “play” account

Investing Your Money

When you look into investing your money, the time horizon is important to remember: when will you need the money? Are you looking to save money for next years vacation, or is it for retirement in 20 years? Once you know the purpose of your investing, you can strategize based on a short term or long-term plan.

Short Term Investing

When investing for a short amount of time, focus on saving the money rather than investing. If you need the money in less than 3 years, you’ll need to protect it from market volatility.

  • High-yield savings accounts – These keep your money safe and available. High-yield savings accounts allow you to withdraw the money at any time. It may only pay slightly more than 1%, but the stability is greater than the gains.
  • CD ladders & money market accounts – You may be able to earn slightly more than a savings account with a certificate of deposit (“CD”). The best rates only come out when you tie up the money for at least a year or more. People typically set up CDs with varying maturity dates so at least part of the savings will be available at any given time.

Money market accounts can offer comparable interest to some CDs and come with fewer restrictions, but you’re only allowed a limited number of withdrawals from the account every month.

  • Short term bond funds – If you plan on saving the money past 18 months, short term bond funds could be a relatively stable investment. The gains are minimal. After 10 years, you may start to see a return of 2-4%.
  • Fixed income funds – These funds offer a relatively stable way to get greater return than savings or money market accounts, but they don’t offer gains. They do offer minimal risk and limit the loss of down market.

Long-Term Investing

If you’re looking to invest long-term, you should plan at least 3 years and look into a portion of the savings in stock market equities.

  • 401K & IRAs – If you’re saving money for retirement, 401Ks and IRAs are typically the best options. Many times, the company you work for will offer employer-sponsored 401Ks that come with a match. An IRA can offer an immediate tax-deduction or future tax-free withdrawals.
  • 529 Plans – For college savings, 529 Plans offer tax-exempt withdrawals for qualified education expenses. These plans often include target-date funds which help save for when the child reaches college age.
  • Index funds & ETFs – For bigger purchases like buying a house or starting a business, an investment account with a brokerage may be best. Index funds and exchange-traded funds offer low fees and the best value. Index funds also keep pace with the overall market, while ETFs can be more variable.

9 Steps to Start Investing Your Money

One of the best ways to grow your money is saving and investing. Some of the easiest ways to invest your money is buying mutual funds, stocks, and bonds. Even if you have a 401K or individual retirement account, you’re already investing! Making investments is something anyone can do with just a little education.

  1. Decide how much you want to invest

Figure out how much you want to invest with. You can start with as little as $10, but you might want to start off in a savings account and add more money until you have enough for an investment account.

  1. Start your 401K

Your 401K will help you retire, so you want to make sure you’re investing in that. Try to go the maximum amount, but if you can’t afford it, start where you can and gradually increase it. With employer-sponsored options, you could see 100% return with the maximum amount.

  1. Automate your investments

You can automate your investments through payroll deductions, online banking, or investment company websites. That way the money you are investing is out of sight and out of mind before you can even think about spending it.

  1. Keep it simple

The best way to invest is to start simple until you’re used to it. Index mutual funds are the perfect place to start.

  1. Know the risks

Make sure you know what you’re getting into before investing. The greater risks usually bring the bigger gains, but remember they can also bring the greater losses.

  1. Decide if you’re investing in your retirement or another thing

Decide whether or not you’re investing for retirement, or something else entirely different. That will help you choose what sort of investment account you should be putting your money into.

  1. Educate yourself

Learn how to research and evaluate potential stock purchases, dividend, mutual funds, and other investing basics before you jump in.

  1. Look for low-fees

Companies do charge for their services, and fees can vary by the amount you have in your accounts. Do your research and find the best company for you and your money.

  1. Create a small “play” account

Google and Yahoo both have programs that allow you to create imaginary portfolios and track your progress. That way, you can get an idea of how funds and stocks work before you are in it too deep.

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