Put investing on the bottom of your things-to-panic-about list.
Investing isn’t difficult. You don’t have to be a math genius to understand where to put your money or be afraid of scary terms like “stock market volatility.” (That just means the prices of companies in the stock market are changing rapidly.)
The more you know, the better you’ll feel about investing.
Bottom line, putting your money in stocks and bonds is a better way to grow your wealth over time than using a traditional, low-interest savings account. And that’s why you need to learn a few investing basics.
Most common investing questions have — and you’re not the only one who needs them.
One post on Reddit read, “I’ve always heard it takes money to make money, and I’ve been doing some reading on investing and it just seems like there are countless facets and directions. So where would I start?”
It’s like cooking. It takes time and experience to turn out a dinner with several courses and a sumptuous dessert. Start with one side dish and work your way up.
Words you need to know
Don’t let unfamiliar terms scare you.
Take stocks and bonds, for example, which are kind of the building blocks of investing.
“When you buy stock, you become an owner of a company,” said certified financial planner Dan Routh, a wealth advisor at Old Peak Finance in Chapel Hill, North Carolina. “When does well, your ownership of that share goes up.”
You’ve probably heard that stocks are risky. They can be. But people who have taken a long, historical look at stock values have found that since 1926, stocks outperformed bonds most of the time.
Here’s what Routh tells new investors. “Risk and return are married, and they’re never going to get divorced,” he said. “There is no return without risk.”
For bonds, imagine wants to build a new manufacturing plant.
Similar to a homebuyer taking out a mortgage, a company can sell bonds to the public to finance a project. The business then repays the money with interest to its bond investors over a specific time frame. Observers of the market have generally concluded that bonds are less risky investments than stocks.
You may already be investing and not realize it
Got a 401(k) plan?
Here’s how that works. A lot of companies enroll new staffers automatically, and the default investment is often something known as a target-date fund. You’ll know you have that if your account statement shows a fund ending in a year like 2050.
If so, pat yourself on the back. You don’t have to do a thing. “They’re designed to be safe, to invest toward some hypothetical retirement at age 65,” said Douglas Boneparth, a CFP and president of Bone Fide Wealth in New York.
Five investing myths
Ditch old ideas, such as thinking only rich people invest in stocks. “You just need to have some money to invest,” Boneparth said.
Robo-advisors — online, automated services that deliver information and some advice — can sell investments at a low cost. Some apps and robo-advisors have low minimums, even as little as $10 to get started.
If you think investing is just like gambling at a casino, think again. When you put your money in a range of different investments — generally in a mutual fund or an index fund, which hold many different individual stocks — you reduce the risk of losing money.
Investing doesn’t make you rich overnight. It takes decades to grow wealth.
You don’t need to know that much. “Reasonable people can be good investors as long as they have a plan and stick to it,” Routh said.
And you don’t have to have some magical sixth sense. “A common saying is that it’s about time in the market, not timing the market,” Routh said. In other words, over time, your money grows when you invest it.