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How do I Start Investing?

Whether you want to buy a house, fund your child’s education, or save for retirement, investing can help you grow your assets over time in order to reach your financial goals. However, if you are like most people who are new to investing, you might be wondering how to get started. Here’s a quick look at how to begin your investing journey.

Decide how much you want to invest

Before you get started, think about how much you want to invest on a monthly or yearly basis. Consider what fits into your budget.  Even if you only have a couple hundred or a couple thousand dollars to invest per year, it’s a start. You can always up the amount you regularly invest as your income grows.

Invest in retirement

Making investments in your retirement accounts is a great place to start. Options like traditional IRAs and 401(k)s are tax-deferred. This means your money grows tax-free. In addition, if your employer matches your 401 (k) contribution, contributing enough to get the maximum employer match is usually a great way to boost the amount you’re saving.

Branch out

What if you want to invest beyond your retirement accounts? You’ll likely have financial goals other than retirement. The first step is opening an investment account or brokerage account. This lets you invest in securities — stocks, bonds, mutual funds, ETFs, and more.

How do you decide what to invest in? Let’s look at some of the options:

  • Bonds: Bonds are investments in debt. They’re issued by governments and corporations to raise money. When you buy individual bonds, they mature over time and, because you are the lender, the borrowers pay you interest (called coupon payments). Different types of bonds come with different levels of risk.
  • Stocks: stocks are shares in a company. When you own a stock, you own a (small) part of the company. Stock prices can rise and fall based on fluctuations in the company’s business, or in the overall stock market. Choosing individual stocks can be risky and a lot of work, so many investors opt for mutual funds and exchange-traded funds, which include groups of stocks, bonds or other assets.
  • Mutual funds: Mutual funds are large funds that allow you to invest in a portfolio of stocks, bonds, and other securities. Unlike individual stocks, mutual fund prices do not fluctuate during the day, while the market is open, but are determined at the end of the day.
  • Exchange-traded funds: ETFs are similar to mutual funds. They often track a specific industry, commodity, or index, such as the S&P 500. There are several differences between ETFs and mutual funds, but the one difference is ETF prices fluctuate throughout the day along with the market.

There are many other types of investments, but stocks, bonds, mutual funds, and ETFs are among the most common, and the most accessible to beginners.

Stay invested

As you learn how different investments work, and what level of risk you’re comfortable with, you’ll want to make sure your portfolio is diversified. That means allocating the amount you invest among different types of investments. Stocks may rise at the same time bonds fall, for example, so diversifying your investments reduces your level of risk. If one sector rises dramatically, it may be a good idea to rebalance your investments by selling one type and buying another. It’s important to say engaged, keep an eye on your investments, and keep your financial goals in mind as you take your knowledge to the next level.

All investments carry some level of risk including the potential loss of all money invested. No investment strategy can guarantee a profit or protect against loss.

You should carefully consider risks with fixed income securities such as bonds, these include:  Interest rate, Duration, Credit, Default, Liquidity and Inflation. Interest rates and bond prices tend to move in opposite directions, for example when interest rates fall, bond prices typically rise.   This also holds true for bond mutual funds.  Stocks/Equities have greater potential for gains as well as greater potential for loss than bonds/fixed income investments.

Exchange traded funds (ETFs) have risks and trade similar to stocks. Shares of ETFs are bought and sold in the market at a market price, as a result, they may trade at a premium or discount to the fund’s actual net asset value. Investors selling ETF shares in the market may lose money including the original amount invested.