At high school, lunchtime seating was synonymous with social status. Athletes at one table, geeks on the opposite side. This is what made films like “She’s All That” so relatable – the powerful notion of being rescued from anonymity and initiated into the secrets of social success.
In the adult world, we sometimes find ourselves in a metaphorical dining hall, yearning to join the financial elite’s table while stuck in the not-so-cool, bad-at-managing-money corner. Thankfully, this is your formal invitation to join the Everything Finance edition of “She’s All That”.
This piece aims to equip you with the fundamentals of investing, making you skilled enough to hold your own in the next fancy dinner or night out. By the end of this article, you won’t be an investment guru, but you will be ahead of roughly 52% of Americans who aren’t investing in stocks at all.
WHO SHOULD INVEST?
The simple answer? Everyone. Regardless of your future plans, if you ever wish to retire comfortably, simply keeping your paycheck in a savings account won’t be enough. The rate of growth wouldn’t outpace inflation, forcing you to constantly spend less than you save – a difficult task. Investing makes your money work for you, offering better interest rates than any other option through the stock market.
WHEN SHOULD YOU START INVESTING?
Now that you appreciate the importance of investing, resist the urge to throw all your money into the stock market immediately. Make sure you first cross off two crucial prerequisites:
1. Have Disposable Income – Investment isn’t a lottery or a casino game. Don’t risk your bills and become prey to debt just to invest. If you do have debts, you should ideally hold off on investing until you clear them (except maybe in your company’s 401(k), as not investing there might mean leaving matching contributions from your employer).
2. Have an Emergency Fund – If you don’t have a safety net for unforeseen circumstances like car repairs or medical expenses, you’ll likely invest too conservatively to yield substantial returns. Setting aside a fund covering 3-6 months of expenses is wise before diving into investing.
HOW TO START?
Starting with your company’s retirement plan is usually the most straightforward path. Self-employed individuals can check this article on retirement planning. Once you’re comfortable with the basics, you can explore other options like brokerage firms.
INVESTING 101: TERMINOLOGY
Understand the following investment terms before diving in:
– STOCKS: Stocks represents ownership in a company. Your investment will appreciate with the company’s growth.
– BONDS: Bonds are loans made to corporates or governments, with guaranteed full repayment at maturity and dividends at intervals.
– COMMODITIES: Commodities include but aren’t limited to agricultural products. Prices are universally fixed with slight differences based on their usage in different industries.
– MONEY MARKET: A money market is another way to invest your money in different financial instruments like Certificates of Deposit.
– MUTUAL FUNDS: These are professionally managed funds that pool money from different investors to invest in varying securities.
6 FUNDAMENTAL INVESTMENT PRINCIPLES
1. BUY LOW, SELL HIGH: The goal is to buy undervalued stocks and sell them upon appreciation for a better return on investment.
2. RESEARCH: Informing your investment decisions with thorough research on all factors involved.
3. INVEST IN WHAT YOU KNOW: Having industry knowledge enhances your ability to spot potential winners or losers.
4. INVEST FOR THE LONG TERM: Riding out market downturns often pays off instead of panic selling.
5. DIVERSIFY: Spreading your resources reduces the risk attached to any single investment.
6. BE YOUR OWN INVESTOR: Make informed decisions based on your research rather than swaying with prevalent trends.
Investment comes with inherent risk but learning how to invest smartly can drive substantial gains. Unfamiliarity is the terror of investing, but once learnt, don’t forget to invite someone to sit with you at the investor’s table!
We’re curious. When you first dove into investing, what concept boggled you most? Have you shied away from investing in the past? Are you part of a 401(k) plan?
