Learning how to invest money may seem easy, but it’s not. With all the investment options out there starting to invest can be overwhelming, but the truth is we should all be doing it to better our financial lives. If you want to stop working some day you need to save for retirement, if you want to get married you need to save for your honeymoon and if you want to buy a house you’ll need to save for a down payment.
It’s important to know that saving money is not the same as investing. Let me put it this way, all investments are a form of saving, but not all cash savings are invested. You can save money without investing it, however all invested money has to be saved first. Does that make sense?
If you want to learn how to invest money here are four tips to get you started:
Set specific short term goals
Short term investment goals are very different than long term because you can’t take as much risk as you would if you had five or ten years until you needed the money. That’s why it’s important to have separate investment accounts for your short and long term goals.
Near cash accounts are best for short term goals less than a year and fixed income mutual funds are a good choice for goals within five years.
Define your longer term goals
Long term goals don’t need to be well defined until you get closer to the date when you’ll need the money.
If you’re in your 20s or 30s and you’re learning how to invest for retirement all you need to know at this point is that you have 20, 30 or 40 years to invest. You can also diversify your investment options since small term fluctuations in the market won’t be as devastating in the long term.
Invest gradually over time
A lot of people avoid investing because they think it’s for the rich and famous who have hundreds of thousands of dollars. This couldn’t be farther from the truth. Investing is for everyone who wants to do it. It’s for people who want to save for their future and (hopefully) earn a rate of return as the money grows over the years.
If you want to start investing just do it. Go to your bank and contribute an amount into your investments with every pay check. It doesn’t have to be more complicated than that.
Read your statements
There is no other way to learn how to invest money other than putting in the time to learn. Research your investment options, look at past performance (although it’s no indication of future performance) and make sure you’re comfortable with the investment objectives as well as fluctuations.
Reading your quarterly investment statements will help understand how changes in the market affect the value of your investments. It’s also a nice way to keep track of your book value (the value of your own money) versus the market value (the current value on any given day).
