The following is a guest post from Rachel Anna on investing.
If you’ve decided to start investing, congratulations. It’s one of the smartest ways to guarantee your comfort later in life. Stocks, bonds, money market accounts, 401(k)s, IRAs—there’s a wide range of options that you can use to incubate your nest egg while you wait for it to hatch. Investing is popular and profitable, but it’s essential that you have a plan of attack before you start.
Investing Strategy Basics
1. Repay Your Debts First
The annual interest rate on credit card debt can be up to 15%, so the longer you wait to repay that money, the more it will cost you. Pay down your debt ASAP to avoid owing the bank any more money than necessary.
2. Start as Soon as You Can
The earlier you start investing, the longer your money has to grow. Compound interest is handy investment function that generates money based on your reinvested earnings. For example, if you invest $5,000 at 10% interest, that initial amount will grow to $5,500 by the end of the year. If you make no deductions from that account, you’ll have $6,050 by the end of the second year and $6,655 by the end of the third year.
Even if you start with a small initial investment, compound interest will help your wealth grow. Even better news: If you continue to make contributions to that account, your money will compound at an even higher rate.
3. Don’t Invest Money that You’re Going to Need Soon
Take a good hard look at your finances before you invest. Examine your near-future plans to figure out how much money you’ll be able to dedicate to investments. Are you planning on buying a house or a car soon? Only invest money that you won’t need for the next three to five years. If you’d still like to keep your money safe and help it earn interest, consider a shorter-term option, like a money market account.
4. Take Advantage of Your 401(k)
Your 401(k) is one of the most valuable resources when it comes to investing in your retirement. Unless you’re faced with an emergency situation, be sure to max out your 401(k) contribution from your paycheck, especially if your employer will match your contribution. Just remember: The more you put away now, the more you’ll have when you retire.
5. Stick to Your Guns
It can tempting to sell your stocks when you see their value begin to drop, but don’t automatically give up — fluctuation is normal. A diverse selection of investments in different parts of the economy will help keep your money secure. If one sector falters, you’ll be able to rely on your other investments to keep your portfolio healthy.
Trading in and out of the market can also mean constantly paying fees and missing out on the perks of being a long-term stock holder.
What Strategy Will Work Best For You ?
First off, talk with your banker or financial advisor about personalized investment strategies. Should you invest in stocks? In the long term, stocks can be a great investment. Over the short term, stocks frequently fluctuate and may not provide a solid source of income or financial security.
US Treasury bonds, on the other hand, are one of the safest investments you can make, but definitely not the most profitable.
How Much Should You Invest
Before you get started, you’ll also need to figure out how much you can’t initially invest. The more you start out with, the more profitable your portfolio will be down the road. For example, if you put $2000 in the stock market, 30 years later, at 10% growth (the historical average), you’ll have $34,898. Of course, not everybody any can afford to invest $2000 all at once.
If you’re in your early 20s, investing just $10 every month can still help you build sizable investments by the time you’re ready to retire.
That’s not to say that older, more financially stable investors can’t also use the stock market to their advantage. Assuming an average 10% return, an investment of $160 in a particular stock every month for 20 years could potentially grow into a very valuable nest egg. Remember, the best investments are those that you and your financial advisor have carefully considered.
Start early and build a balanced portfolio that will help your money grow for years to come. It may mean that you need to cut back a little now, but you’ll thank yourself in the future.
Rachel Anna writes articles for Allied Cash on responsible borrowing, investment, and budgeting.
 “Investing your money basics.” CNNMoney. 05 12 11: n. page. Web. 7 May. 2012.
 “Why Should I Invest?.” Motley Fool. n.d. n. page. Web. 7 May. 2012.
 “Investing 101: Introduction.” Investopia. n.d. n. page. Web. 7 May. 2012.
[email protected]&More says
I started investing for retirement and other goals in my early twenties and it has definitely begun to pay off even just a couple years later!
Yes I have been following you, you achieved quiet something at young age compared to all others.
Sean @ One Smart Dollar says
Pay off high interest debt before investing but I would start investing a little at the same time as you are paying off low interest student loans.
Sometimes its not that low. And We can’t guarantee more than 4% return investing, do we? Most student loans are higher than 4%. But for the sake of investing one could put some money away every month, no doubt.
Compound interest is one of the most powerful forces in the universe!
Save as much as possible when young, while letting compounding work its magic. The “old” you will look back and be thankful for the wisdom of the “young” you. In other words, you’ll be glad you had discipline and did the right thing when younger.
Very nicely said Ray!
I started investing when I was quite young but then I made a rather drastic change and decided to take some big risks with a business venture. It paid off but it is a bit unfortunate to lose some of those compounding years.
Of course the best advice above is simple – get out of debt! Once you do that, then the financial possibilities are truly endless. I’ve seen people who have taken years to dig out of what seemed like gigantic financial holes, but the moment they are out they see how tiny it really was and just how huge the potential now is for them and their finances. Funny how perspective works…
I have never been in debt and I can’t feel it. But, if you ask me, I can invest the way I want. The amount, I just have to cut back to meet the target.
Virginia Accounting Services says
Most individuals know that they should spend their cash. Eventually, well believed out financial commitment strategies can out-perform most easy benefits records. But the concept of actually beginning an financial commitment can be paralyzing.
What should you spend in?
How much cash should you invest?
Where do you even start?