Saving your first big amount is a big and challenging task. Even more difficult is to find the right investment for those hard earned, harder saved dollars. The experience is exciting and terrifying at the same time. Exciting to possibly see your savings increase manifold and terrifying to possibly see them get reduced by the same factor. Thus, it may become intimidating and seem complex, but it certainly is not if you know some of these basics well.
- The Time Frame:
First, be absolutely clear about when you intend to use the money gained from the investment. Buying the current trending stocks in the market is not wise, rather the decision of selecting which stock to buy should be based on how soon you require the money from that particular investment. A general rule would be to choose a less risky option if you are going to need the money soon and a more risky and paying option for a longer term requirement. In case of a longer time frame the risks can be equalized and managed so that by the end of term you have a good dividend from your stocks. So, it is important to learn about short term and long term investment options.
- Minimal Risk For Short Term Investment: If you have a short term goal in mind and can not afford to lose on what you have built on so far then avoiding the stock market is advisable. The other options to explore for investing may include
- Certificates Of Deposit: These are backed by the FDIC and hence give guaranteed results on a minimal risk.
- Treasury Direct In Savings Bond: These bonds being issued by the US government are considered very safe against loss although the current rate of these bonds is 1.18% every year. There is a possibility that the rate on these bonds will increase.
Short term options definitely have lower risks but then they also yield lesser in terms of dividends. This is a decision to be made in the interest of either lower risk or retaining savings.
- Long Term Growth:
Long term investment affords you the luxury of time. Most of the people reading this would be young and have time on their side. So they can afford to plan for as long as a decade or even a little more. With such a span your investment can grow and weather the highs and lows and give you good returns. Asset allocation is of great importance when it comes to long term investing. It is also important to diversify your long term investing portfolio and build on different channels like mutual funds and exchange trade funds. Long term investments also offer better return rates. Some things to note to gain greater benefit from these investments.
- Use retirement accounts for their tax advantages. Invest in Roth IRA for which an account can be created in minutes and with negligible brokerage.
- Don’t monitor your investment too closely. Doing so can give you an information overload and easily misguide you. Give them their due attention though.
- Buying individual stocks can be risky but they give you greater control over your stocks.
- Mutual funds are quite popular but they are also high expense funds and can eat in to your savings.
- It is better to stay away from those investments that are too good to be true because they are those investments with the greatest risks involved and most of the times are very unrealistic.