Investing

Investing can be a great way to make your money work for you, but there are a lot of risks associated with it. Whether you have already started investing or are at a loss for where to start, it’s important to know what options you have and what decisions you should make before diving in.

First, you need to identify your purpose and end goals for investing. Are you investing to make your money grow for your retirement account? Or, do you need money in the near future? You need to establish how much you are going to invest and how much you hope to end up with. These goals will make future choices about where to invest a little easier.

Like we said, investing comes along with quite a bit of risk. A general rule of thumb for assuming risk when investing is that your risk should have and inverse relationship with your age, meaning the younger you are the more risk you can assume. This is because you have a longer period of time to reach your financial goals. If taking a risk ends up badly you still have time to recover. On the other hand, if you are getting ready to go into retirement you want to make less risky decisions because a risk that ends badly could severely decrease your retirement fund.

Another very important rule when investing is to diversify. This means that you do not want to stick all of your money into the same type of investment. However, how do you know where to start putting your money? Below are just some of the most popular investment options out there provided by the Secretary of State’s office.

Money Market Accounts- Money market accounts are a sort of checking account/savings account hybrid. Like a savings account, you deposit money into the account and it earns interest. However money market accounts generally have higher interest rates than savings account. Then, like a checking account, you are allowed to write a certain number of checks each month from this account. Money market accounts are good for stable investing; there is not a lot of risk to incur. They should primarily be left allowed to acquire more money, however can be dipped into as a type of emergency fund.

Certificates of Deposits (CDs) – Like money market accounts, when investing in a CD you deposit money into an interest earning account. However, the difference is that with CDs you and your bank agree upon a maturity (end) date for the investment. At the end of that period of time the bank repays you the principle amount that you deposited plus the interest you earned. With CDs, when your investment reaches its maturity date, you also have the option of rolling the money over into another CD, usually one with a higher interest rate.

Stocks- Stocks are a representation of part ownership of a corporation. When an individual invests in the stock of a certain corporation, they claim partial rights over the assets and earnings of that company. Most stocks pay dividends, which are just a portion of the company’s earnings that are paid to stock holders, annually. If you are interested in purchasing stocks look at the FINRA’a guide for stocks to get a better understanding about all of the options you have.

Bonds- With most bonds, an individual (the loaner) gives money to the government or a corporation to help them carry out their necessary business. However, the borrower (the government or corporation) is required to pay back the entire amount borrowed in an agreed upon time period with interest. Check out Smart Bond Investing from FINRA for more advice on investing in bonds.

Mutual Funds- Mutual funds, which are usually managed by investment banks, pool funds from a lot of different individuals together and then invest that money in a variety of places. Mutual funds are a great option because when you pool your money with others you have a larger amount to invest and the risk incurred is shared among individuals.

If you are still a little unsure about diving into investing on your own, find a financial planner. The Financial Planning Association has a searchable database to help you find a planner that meets your exact needs. You can also do a little more research on what options are out there at the Morning Start Investment Research Center (to use this website all you need is a library card) and learn basic investing vocabulary at http://www.finra.org/Investors/SmartInvesting/.