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The Time to Start Investing is Now
Does the thought of funds and portfolios make you start to sweat? Do you think investing is only for the rich? Don’t let excuses or fear cause you to skip out…investing is a great way to grow your wealth. We can all get behind that concept.
These days there are companies and services whose mission is to make investment options available for everyone, including beginners and those with small amounts of money to put to work.
Investing helps you make your money work for you because of compounding. Compound earnings means that any returns you earn are reinvested to earn additional returns. Most important, the earlier you start investing, the more benefit you gain from compounding.
Here are some investment ideas for beginners:
1. 401(k) or other employer retirement plan
Find out if you have a 401(k) or another retirement plan at work. It’s the first place you should put your money — especially if your company matches a portion of your contributions. That match is free money and a guaranteed return on your investment. Most 401(k) contributions are made pretax.
These are services that manage your investments for you using computer algorithms. With low overhead, they can charge low fees. A robo-advisor typically costs 0.25% to 0.50% of your account balance per year, and many allow you to open an account with no minimum. They’re a great way for beginners to get started investing because they often require very little money, and they do most of the work for you. These are a good place to “watch and learn” as you start out.
3. Target-date mutual funds
Target-date mutual funds are retirement investments that automatically invest with your estimated retirement year in mind. A professional manager will choose how the fund is invested, usually with a general theme like U.S. equity mutual fund and will invest in U.S. stocks (also called equities).
A target-date mutual fund often holds a mix of stocks and bonds. If you plan to retire in 30 years, you could choose a target-date fund with 2050 in the name. That fund will initially hold mostly stocks since your retirement date is far away, and stock returns tend to be higher over the long term. Over time, it will slowly shift some of your money toward bonds to take a bit less risk as you approach retirement.
4. Index funds
An index fund typically tries to match the performance of a broad market like the U.S.-based S&P 500. You have more control than a target date fund and can choose a selection of funds that make up a well-diversified portfolio that you can adjust over time.
Index funds can have minimum investment requirements, but some brokerage firms, including Fidelity and Charles Schwab, offer a selection of index funds with no minimum. You can begin investing in an index fund for less than $100.
5. Exchange-traded funds (ETFs)
ETFs operate similar to index funds. They typically track a market index S&P 500. .. They also tend to have lower fees than mutual funds. The main difference between ETFs and index funds is that ETFs are traded throughout the day. Investors buy them for a share price, which like a stock price, can fluctuate. Be sure to choose an ETF that is commission-free so you aren’t paying a commission each time an ETF is bought or sold.
6. Investment apps
Today there are investing apps designed for beginner investors. One is Acorns, which rounds up your purchases on linked debit or credit cards and invests the change in a diversified portfolio of ETFs. It works like a robo-advisor, managing that portfolio for you. Another app option is Stash, which helps teach beginner investors how to build their own portfolios out of ETFs and individual stocks. Stash also offers a managed portfolio.
So get started investing, consider what goal you want to achieve. Remember that all investments have some level of risk and the market is volatile. The important thing is that you just have to get started so you can help your wealth grow.