How to Start Investing: a Financial Literacy Month Primer for Beginners
Leisl L. Cording, CFP®, CDFA®
Senior Vice President & Financial Advisor
April is Financial Literacy Month, and at the same time, there’s no question that the financial markets have certainly been in the news a lot lately. But although current market conditions are volatile, that also creates opportunities to make smart investments that could pay off in the short term when the markets normalize and potentially even more over the long term as those investments grow.
So in honor of Financial Literacy Month, here are the basics of investing for anyone who’s ready to start taking advantage of the benefits investments have the potential to bring.
If you’ve got the income available to invest but you’re new to investing and aren’t quite sure how to start, rest assured that you’re not alone. But also realize that making smart and strategic investment decisions requires knowledge of how investments work, a clear idea of what your financial goals are and how long you have to achieve them, and a solid plan for how to get from here to there.
But before you do a deep dive into theories, past performances or principles, it’s essential to first have a good handle on the following basics of investing and what you should know as you look to grow your financial knowledge.
What is investing?
Many of us have heard the term “investments” used in many ways and it’s a concept most of us are familiar with to some degree. But unless you’ve really taken an interest in the markets or set aside time to study them, you may not have a total understanding of what investing is, all that’s involved with making investments, or what different types of investments are out there. So let’s start by defining what exactly investing is.
In its simplest form, investing is the process of giving money to another entity (such as the government or a company) with the hope that they will return more money to you (a profit) at a later time. While it sounds simple enough, giving money to another with the expectation of gaining more in return introduces the idea of weighing risk versus reward.
Why do people choose to invest?
Due to inflation, the value of a dollar in your hand (or under the mattress) is continuously deteriorating - which is what makes investing an appealing choice for many. The idea is to put a certain amount of your dollars in a place where they’re expected to earn more in the future (assuming a positive return is earned) than a dollar left sitting in savings.
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What types of investments are available?
There are a variety of different types of investments you can make. While there are more out there, here are a few of the most common types of investments and a brief explanation of what they are.
- Stocks: Giving your money to a specific company, earning you a share or piece of the company in return.
- Bonds: Loaning your money to a government or other issuer, with the agreement that you will receive that amount back with interest at a later date.
- Mutual Funds: Using a professional money manager, pooling your money together with other investors and purchasing a group of stocks, bonds or a mix of both in a single transaction.
- Index Funds: A type of mutual fund that doesn’t use the services of a professional manager, index funds aim to mirror the performance of the index they’re tracking (such as the S&P 500).
- Exchange-traded Funds: Index funds that can be traded on an exchange throughout the day, as the prices of stocks fluctuate.
- Real Estate: Real estate investment is purchasing, owning, leasing and/or selling land with the intention of gaining a profit. Real estate investments typically fall into one of four categories: residential property, commercial property, industrial property, and land.
What is investment risk?
According to the Securities and Exchange Commission, risk refers to “the degree of uncertainty and/or potential financial loss inherent in an investment decision.”1 How does this relate to investments? In general, the higher the risk of an investment, the greater the potential reward. Every investment vehicle and product comes with its own set of risks, from determining how quickly an investor will be able to access their money when they need it, to figuring out how fast their money will grow where it is.
Everyone’s tolerance for risk is unique to them. A common determining factor may be a person’s time horizon, such as how far away they are from retirement, or how close they are to needing access to the money invested. Another factor could be considering how much money you’re willing to risk losing without affecting your lifestyle or jeopardizing your needs.
Now for the next steps to get started with investing.
You now have a basic understanding of what investing is and how it can benefit you, some of the most common investment options that are available to you, and how to think about and weigh the risks involved with seeking investment returns.
The next step is to choose which investments, and in what combination, make up the best overall investment strategy for you. That can be a daunting and difficult task, especially for a beginner, so it’s a wise idea to do more learning and research before moving ahead with actually making any investments.
Or you can opt to work with a financial advisor who acts as a fiduciary to help you create an investment strategy with the right balance of risk and potential reward for your goals and timeline.
Our team at Weiss, Hale & Zahansky Strategic Wealth Advisors act as fiduciary wealth managers. We can help you build an investment portfolio that’s tailored specifically for your needs and goals using our strategic Plan Well, Invest Well, Live Well™ process, and we’ll be there to keep your strategy on-track toward your goals through all the market’s ups and downs, so you can invest with much less worry. To get started, simply reach out to request a complimentary consultation on our website, or call us at (860) 928-2341.
Presented by Senior Vice President, Financial Advisor Leisl L. Cording CFP®, CDFA®. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. 697 Pomfret Street, Pomfret Center, CT 06259 and 392-A Merrow Road, Tolland, CT 06084, 860.928.2341. http://www.whzwealth.com These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your financial advisor. Weiss, Hale & Zahansky Strategic Wealth Advisors does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice.
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