When I first started looking into finances and financial planning I found there was a plethora of useless information available to me. Oh, there were pages and books claiming to focus on investment for beginners, but they seemed to surpass the light reading material I was looking for. But they all seemed geared toward people who wanted to make investing their main source of income. I didn’t feel like losing my ass as a day-trader. I just wanted to start building a, nice, private retirement account.
It took a lot of research, a lot of screw-ups and a considerable amount of wasted money for me to build a plan for myself. Hopefully I can save you some time and frustration here. The first thing I’m going to tell you is to get a “guy”.
Get a “Guy”
I know my way around finances well enough to manage mine. But probably my best asset is that I know what I don’t know, and that’s quite a lot. For these instances I’ve “got a guy”. You need to have a financial manager if you intend to do any real investing for your future. Think Charles Schwab or Edward Jones. These people have had extensive education in finances and study it day in and day out. They know how money works, they know their markets(for the most part) and they are familiar with different investment strategies that they can tailor to your needs.
You, on the other hand, probably do not have these same qualifications. This is not a Google-study-plan topic. Trying to do this for yourself and by yourself can, quite literally, cost you a fortune. I good investment manager works on commission, so don’t worry about the upfront cost. And these guys are worth every penny of commission they earn. If you find the right one they will also work to educate you on finances so you understand the markets and where your money is going.
Pay off Debt FIRST
This is huge. If you’re looking for one tip on investing for beginners to follow, this is it! PAY OFF DEBT! Let’s talk numbers. If you invest $10,000 in a good mutual fund that, draws in 7% interest, you will make $700 in interest. But, if you have $5,000 in credit card debt at 15% interest you pay $750 in interest. You’ve effectively lost $50. And that’s just your credit cards. Add in the mortgage, car loans, student loans and lines of credit and you could have a veritable money siphon draining your future away.
Even if you have excellent credit and your interest rates are sitting at 3-4% you’re still taking away from your return on investment. There are no good personal debts(expect a house that can appreciate in value!). Anyone that tells you otherwise is full of shit. You’re literally borrowing from your future for immediate gratification.
There is no point in saving money while you have debt. Use the money you would invest and pay off your debts early. In the long run you will save more money and, therefore, make more money from investing.
If you are working with a good financial manager they will explain all of the options available to you, their pitfalls and benefits, and how they would fit into a plan for your financial goals. But I’m going to touch on a few breifly to get your mind working.
This is the one investment most people are familiar with, but don’t really utilize. If you work at a company that matches a certain percentage for 401K investments, and you are investing less than that percentage, you are wasting money. If your employer matches 6%, and you make $1000 a week, they are offering to give you $60 a week for securing your future. So if you only contribute 3% of your check that means you’re giving away $30 a week! $120 a month! $1560 a year! If you work at the same company for even 10 years you would have basically turned down $15,600 that could have gone toward your retirement!
I LOVE Roth IRAs! Unlike a tradition IRA(individual retirement account) you pay taxes on the money as it goes in. This means that if you invest a total of $200,000 over the life of your career you pay taxes on $200,000 even if, with interest, your investments returned $500,000.(That kind of growth is unrealistic and only used to illustrate a point) Whereas with a traditional IRA you would have to pay taxes when you withdrew the money. Which means you would have to pay taxes on $500,000 in the example above.
The contribution allowed is the same whether you go with a traditional IRA or a Roth, or some combination of the two. Speak with you financial adviser for guidance on which one best suits your needs.
So far we have discussed investment accounts. Both an IRA and a 401K are financial accounts that can contain individual investments and mutual funds within them. A mutual fund is a group of investments managed by a portfolio manager. To put it simply: a group of people pool their money to invest in a group of companies while someone manages the investments.
Here’s why investing in a mutual fund is a good idea:
IRA’s and 401K have investment limits. You can only put a little over $5000 in an IRA annually and a little over $18,ooo in a 401k in 2017. While most people don’t have $23,000 to invest annually, mutual funds also serve to diversify your investments. A good mutual fund, with proven track record may draw 8% interest which is on par or slightly less that an IRA. But, again, your financial manager can help you decide what’s right for you.
I use an app called Stash for smaller investments, and I think this could be a hugely useful tool for teaching people to invest. Basically you pay $1 a month for the app and you can decide how much money to invest through it. They have several different fund that you can choose from and let you see the historical performance of each fund in the app. This is by far my favorite app associated with investing for beginners.
Here’s why I use it:
There are no other costs associated with using the app. Normally when you buy and sell stocks you pay commissions, but Stash doesn’t charge you. You can buy and sell as you see fit and never pay a dime more. You can also take your money back out in a pinch if you need it.
I like to play around on this app and earn a few dollars a month buying low and selling high. I watch the funds and pick the ones I want. If they have an off day I’ll buy a few dollars worth and hold it until the price goes back up, then sell. I use whatever money I make to reinvest in another fund, or even the same one if the price dips again.
I do want to tell you that doing this does not come without risk! You could try to do this and lose money. I do it for fun and it gives me a way to make a little extra money outside of other investments. Do not put the family fortune into this app and hope to get it right! Use it for what it is! This is a fun way to learn about investing, and make a little extra money.
If you are serious about investing in your future make sure you spend some time investing into your knowledge. You need to know how our monetary system works and what exponential growth is. You need to know that inflation is around 3.22% historically and what that means for you! It might also benefit you to know how our central banking system works and that our money is no longer based on hard assets like gold and silver. These things can help inform your decisions when you make investment decisions.
I will go into further detail about each of these subjects and more in future posts, but for now please work toward educating yourself as much as you can.
Disclaimer: I am not a financial adviser, please speak with a professional financial adviser prior to making investment decisions!
Want to make more money to invest? Read:6 Apps to Make a Real Side Income
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