Investing 101
We get it, investing can seem a little overwhelming at first; stocks, bonds, long term, short term, options, futures, forex, where do I begin, what do I do, what????!!!
Don’t worry, it’s not that bad. Hey, if I can learn it, anyone can.
First of all, investing is nothing more than buying something you expect to increase in value. People invest in all kinds of things ranging from stocks, bonds, and mutual funds to the more exotic such as coins, art, and antiques. Regardless of the investment, the goal is the same; to earn a profit.
People invest to reach long term goals; whether is retirement, the kids college fund, or that beach house in the tropics they have always dreamed about. Putting money to work today allows the power of time and compounding to really work it’s magic.
Compounding sounds complicated but it’s not. All it means is that your money grows by making a profit on the original investment, then next year you earn profit on the original investment and last year’s profit. This goes on and on as long as you continue to keep your money working and earning a return each year.
Let’s take a look:
$5000 dollars buried in the yard for 30 years will be worth $5000.
$5000 compounded at 3% for 30 years will be worth $12.136.
$5000 compounded at 8% for 30 years will be worth $50,313
(Click Here for our Compound Interest Calculator to See What Your Investments May Be Worth)
Pretty cool, huh?
Ya, but….
I don’t need to invest, I have a savings account at my bank.
Well, that’s a good start. Most people start with a simple savings account. It’s not much of an investment though. What you are really doing is lending the bank YOUR MONEY so THEY can make investments and in exchange they pay you a little fee. The problem is, after taxes and inflation you are breaking even at best.
No thanks, I’m going to win the lottery.
Yeah, so am I, but in the mean time have a back up plan. Gambling your future on a long shot is usually not the best bet. Lotteries, casinos, and race tracks all exist for one reason; to make the owner money by taking yours. Sure, some people do get lucky and hit the big one and its fun to try once in a while but gambling is not the same as investing. With proper planning and research investing turns the odds well in your favor.
Stock prices go up and down all the time. I may as well just gamble.
There are risks when investing we’re not here to tell you there aren’t. Sometimes things just don’t work out as expected. The difference between gambling and investing is in the research and planning. By taking a balanced approach to investing and diversifying between growth, security, income, and a little speculation; you can limit risks and your overall portfolio should grow at a nice rate over time.
I’m Not The Investing Type
Really? I bet you are already an investor. Most people are, they just don’t see it that way. Do you own a home? Did you go to college? Start a business? These are all forms of investing.
We are buying or trading something of value today (time, money, or both) in exchange for something we think will create value for us in the future. I bet if you think about it, you can come up with other examples where you’ve needed to think like an investor as well.
But I’m not rich.
You don’t need to be rich! There was a time, not so long ago, before Al Gore invented the Internet, and cell phones looked like grey bricks with antennas, that investing wasn’t so easy or inexpensive. When I started as a broker back in 1985, we used to charge clients $250-$300 dollars in commissions on a $10,000 trade. No wonder people thought investing was exclusively for rich people.
Thankfully times have changed, anyone can enjoy the benefits of investing.
No more excuses:
- You can start with as little as $25.
- Build a balanced portfolio of stocks and bonds using mutual funds.
- Open an account in minutes.
- Set up automatic withdrawals so you never forget to pay yourself.
- Buy small pieces of companies you think are cool.
We strongly urge everyone to sit down, put together a plan and get started.
Here’s a couple of places we found that may be a great starting point for long term investing, all it requires 5 minutes, and with as little as $25 you can start investing in your future!