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Ever thought about investing your money, but not sure where to start? You’re not alone.

About 39% of adults don’t have any stock investments, according to a recent Gallup poll.(1) The good news: It’s never too late to start.

Investing is one of the most effective ways to grow your wealth over time.(2) And it doesn’t have to be risky.

Investing can help you save for retirement, pay for your children’s education, take a dream vacation, and build long-term wealth.

With a few simple steps, you can get started on a path to financial growth and security.

Here’s what you need to know:

What is Investing?
Investing is putting your money into assets with the expectation that they will grow over time.

These assets can include:(3)

  • Stocks
  • Bonds
  • Real estate
  • Mutual funds

Think of investing like planting a seed. It takes time for a seedling to develop roots, grow, and get bigger and stronger. Making smart investments can help grow your money over time, too.

Investing vs. putting money in a savings account
Investing helps your money grow faster than it would in a regular savings account.

While savings accounts offer some interest (average interest rate for savings accounts is 0.45%)(4), investments can provide much higher returns over time.

Investing also helps you build a financial cushion for future needs like:

  • Retirement
  • Emergencies
  • College tuition
  • Large purchases

Here are seven simple steps to help you start investing.

Step 1: Build an emergency fund
Before diving into investing, it’s crucial to have an emergency fund.(5)

  • This fund should cover three to six months’ worth of living expenses.
  • It acts as a safety net for unexpected expenses like medical bills or car repairs, so you don’t have to dip into your investments prematurely.

“Having a reserve fund for financial shocks can help you avoid relying on other forms of credit or loans that can turn into debt,” according to the Consumer Financial Protection Bureau.

Step 2: Make use of employer-sponsored retirement plans

If your employer offers a 401(k) or similar retirement plan, make sure to take advantage of it, especially if your employer offers matching contributions.

  • 67% of private employers offer 401(k) retirement plans(6)
  • 92% of employers that offer 401(k) retirement plans match employee contributions(7)

Employer matches are essentially free money that can significantly boost your retirement savings. Contributing to these plans can also offer tax benefits, reducing your taxable income each year.

Step 3: Understand your goals and risk tolerance

Before you begin investing, it’s important to understand what you hope to achieve and how much risk you’re comfortable taking.

  • Are you saving for retirement, a child’s education, or perhaps a dream vacation?
  • Knowing your goals will help you determine the right investment strategy.

Generally, the closer you are to needing the money, the less risk you should take.

  • For example, if you’re planning to retire in 10 years, you might want a more conservative portfolio compared to someone who is 20 years away from retirement.

Step 4: Understand different investment options
There are various investment options, each with its own risk and return profile. Some of the most common investment options include:(8)

  1. Stocks: Buying a stock means owning a piece of a company. If the company performs well, the stock value increases, and you make money. However, if the company performs poorly, the stock value decreases, and you could lose money. Stocks can be volatile, but offer high growth potential.
  2. Bonds: Bonds are loans you give to companies or governments in exchange for periodic interest payments and the return of the bond’s face value when it matures. Bonds are generally safer than stocks but usually offer lower returns.
  3. Mutual Funds and ETFs: These are collections of stocks, bonds, or other securities. Buying shares in a mutual fund or exchange-traded fund (ETF) gives you exposure to a diversified portfolio, reducing risk compared to investing in individual stocks or bonds.
  4. Real Estate: This type of investment typically includes residential homes, commercial buildings, and land.(9) While economic trends can cause real estate values to fluctuate, real estate values tend to rise over time.

Step 5: Start small
You don’t need a large amount of money to start investing.

  • Employer-sponsored 401(k) retirement plans don’t have a minimum contribution requirement.
  • Many online brokerage platforms allow you to begin investing with small amounts, sometimes as little as $100.
    Start with what you’re comfortable with and gradually increase your investments as you gain confidence and knowledge.

Step 6: Diversify your portfolio
A diversified portfolio is like a well-balanced diet. It includes a variety of investments, which helps spread out risk.

  • This means not putting all your money into one type of asset, like stocks.
  • Instead, consider a mix of stocks, bonds, and perhaps some real estate or mutual funds.

Stocks can offer higher returns but come with higher risk, while bonds are generally safer but offer lower returns.

Tip: Mutual funds and index funds are great choices for beginners, because they pool money from many investors to buy a diversified mix of assets, which can reduce risk.(10)

A balanced mix of stocks, bonds, and mutual funds can help you weather market volatility and protect your investments.

Step 7: Adopt a long-term perspective
Investing is a marathon, not a sprint. The market will have ups and downs, but historically, it has trended upwards over the long term.

  • Avoid making impulsive decisions based on short-term market fluctuations.
  • Stay focused on your long-term goals and give your investments time to grow.

Secure your financial future with simple investing

Growing your wealth through investing doesn’t have to be complicated or stressful. Following these seven simple investment strategies can help you achieve your financial goals.

Still have questions? Talk to a financial advisor for help based on your unique goals and circumstances.

References

  1. Gallup. (2023). What percentage of Americans own stock? From: https://news.gallup.com/poll/266807/percentage-americans-owns-stock.aspx
  2. Turner, T., et al. (2024). What is investing and how does it work? Annuity. From: https://www.annuity.org/personal-finance/investing/
  3. U.S. Securities & Exchange Commission. (2024). Introduction to investing. From: https://www.investor.gov/introduction-investing
  4. Federal Deposit Insurance Corp. (2024). National rates and rate caps. From: https://www.fdic.gov/resources/bankers/national-rates/index.html
  5. Consumer Financial Protection Bureau. (2024). An essential guide to building an emergency fund. From: https://www.consumerfinance.gov/an-essential-guide-to-building-an-emergency-fund
  6. U.S. Bureau of Labor Statistics. (2021). 67 percent of private industry workers had access to retirement plans in 2020. From: https://www.bls.gov/opub/ted/2021/67-percent-of-private-industry-workers-had-access-to-retirement-plans-in-2020.htm
  7. Miller, S. (2015). One in four workers miss out on full 401(k) match. Society for Human Resource Management. From: https://www.shrm.org/topics-tools/news/benefits-compensation/one-four-workers-miss-full-401k-match
  8. U.S. Securities & Exchange Commission. (2024). Learn about investment options. From: https://www.investor.gov/introduction-investing/investing-basics/save-and-invest/learn-about-investment-options
  9. Folger, J., et al. (2024). The truth about real estate prices. Investopedia. From: https://www.investopedia.com/articles/mortages-real-estate/11/the-truth-about-the-real-estate-market.asp
  10. Lockert, M., et al. (2023). How to invest in index funds: A guide for beginners. Business Insider. From: https://www.businessinsider.com/personal-finance/how-to-invest-in-index-funds

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