Almost every financial advice resource - from your advisors, to online blogs, to your family member you only see once a year at reunions who claims they know more about money than anyone else in the family - says that in order to have stable finances and independence, you should invest your money.
Sure, it sounds like a smart thing to do. All the rich people do it, right? Why shouldn’t I?
So, you sit down at your computer, and you wonder - how do I even begin? What is a stock? How do I “match my 401k?” What about my debts?
With all these questions in your mind, it’s easy to put investing off until you think you’re ready. But we’re here to tell you - the sooner you start investing, the better off your future will be. Even if it’s small, investing should absolutely be included in your financial planning.
Here’s our quick-start guide on how to research, prepare, and begin investing:
Figure out your why, and why now.
You’ve probably heard many times with almost every smart habit to just start now. Just start exercising now. Just start eating healthy now. Quit smoking now. Start saving now. The same can be said of investing - to an extent.
If you are in a viable position where putting money into investments won’t hurt your current living situation, then start now. If you don’t have savings, or have a huge loan to pay off (such as school), or if you haven’t done your research, make sure these are done first.
Best of all - if you can figure out how to manage these aspects and put a little way to start investments, then you’re golden.
Make sure you also figure out why you want to invest, as this will help you determine what to invest in. Is your goal long-term or short-term? Are you buying a house? Are you saving for retirement? Clearly determining your why will set you up on a much more successful - and much less intimidating - investment path.
Learn the different types of investments.
There are many different options to choose from, and investing smartly means choosing the options that are best for you. These types include:
Stocks - These are probably what you think of when you hear “investing”. A stock is a share of a company that you purchase at a price determined by the stock market (depending on market climate and how well that company is performing). As a shareholder, you have the opportunity to vote at shareholder’s meetings, as well as receive dividends (which the amount is determined based on if you hold a common stock or a preferred stock).
Bonds - These are loaned by an investor to a company in exchange for interest payments plus the bond’s face value when the bond matures. Bonds are issued by corporations, the federal government, and states and municipalities.
Mutual Funds - Managed by an investment manager, mutual funds are pools of investing money that can be used in stocks, bonds, and other types of investments simultaneously. Mutual funds are valued at the end of a market day, and can be accessed and traded after market hours as well. Distributions are made in the form of dividends, interest, and capital gains.
ETF’s - Similar to mutual funds, but are traded on stock exchange during the market day. ETF’s are valued constantly while markets are open, unlike mutual funds.
Real Estate - These are made by purchasing a property directly - residential or commercial. These investment trusts are then pooled together with the investor’s money and purchase properties, and traded like stocks. Mutual funds and ETF’s can also invest in real estate investment trusts.
Hedge Funds - Only open to those who meet income and net worth requirements, hedge funds can virtually invest anywhere and are more likely to hold up in more volatile markets.
Private Equity - Another type of investment that has income and net worth requirements. This is a way for companies to raise capital without going public.
401K - Did you know that matching your employer’s contribution to your 401k is considered an investment? If your company offers this, take advantage of it as soon as possible. While it may be hard to part with that money now, your future self will certainly thank you later.
Determine your course of action.
Now that you have a better idea of your options, it’s time to make a plan. While it is possible to plan on your own, it’s much easier to find a professional who can help you. When you meet with Milborn Advisors, you will be asked to prepare all necessary documents to see exactly how far you are on your financial journey and if you are ready to invest. We’re even able to help you set up your investing account through TD Ameritrade - you tell us what you want to invest in, and we will take care of the rest!
Investing can be scary, but it doesn’t have to be - as long as you know why you want to invest, what you can invest in, and have a strong team behind you, you can absolutely use investments to supplement your financial goals!
What’s holding you back from investing? Let us know in the comments!