Investing Basics for Millennials

investing for beginners

As the average college student graduates with around $30,000 in debt, it can be hard for young adults to even think about using any of their income to invest. Even for those who did not go to college, most working Americans are living paycheck to paycheck. In fact, the latest Merrill Edge Report found that 66% of millennials would rather put their money in a savings account instead of investments or a retirement plan. For many millennials, it can be confusing or scary to entrust their financial security into the hands of others. The good news is, investing doesn’t have to be scary or difficult. Here, we explore a few ways beginners can start investing in themselves and their financial futures.

Why invest in the first place?

Put simply, the number one reason to invest is to create wealth. Smart investing is the best way to increase the power of your financial resources. Investing can make it possible for you to achieve your financial goals, start a college fund for your kids, establish a legacy, or even just create a safety net for retirement. If you think you don’t have enough money to invest, think again. There is no one-size-fits-all investment plan. While most financial planners suggest investing 10% of your income, investing what you can is better than not investing at all. A small initial investment when you’re young can have a big long-term impact.

There are many different ways to invest, but the most common forms of investment are the ones you can choose as part of a brokerage account or through your retirement plan at work. These generally include:

 

Stocks
Stocks are a partial ownership of one or more companies. If a company does well, the value of their stock increases—along with the return on your investment. While more prone to sudden and sometimes drastic changes, stocks have a high return potential over longer periods of time.

 

Bonds
Bonds are fixed income investments designed to create a consistent stream of income. The values of bonds are vulnerable to interest rate fluctuations, but they are considered to be more stable than stocks, despite having a lower return potential.

 

Cash
This doesn’t just mean physical cash. It also includes investments like savings accounts, artwork, or collectibles. Cash investments tend to be the lowest risk, but they also have the lowest return on investment.

 

Mutual Funds and ETFs
These funds invest money pooled from many investors in an array of stocks, bonds, and other investments.

 

Your personal investment portfolio will be different than any one else’s portfolio. Part of learning how to invest is learning how to make the best decisions for your own financial future. Still, there are some basic rules to help you start making smart investment choices.

The biggest rule in investments is to create a diverse investment portfolio. Diversification can help you ride any potential losses. Even if one of your investments takes a hit, you will be able to rely on your other investments to make up for the loss.

Another important rule of thumb is to invest in what you believe in. Don’t let others do your research for you. If you don’t know or understand what you’re buying, don’t buy it! Do your own research to figure out which investments will be the most profitable for you. After all, no one cares more about your money than you. Be patient with your investments and only invest in what you can afford. If you invest what you reasonably can and give your investments time to mature and grow, you will see some great returns.

Creating wealth through investing involves a lot of research and evaluating different kinds of investments. Once you feel comfortable with the basics, you can come up with a game plan for your financial future. Even with limited funds, making steps towards investing can dramatically affect your financial future. Investing will get easier the longer you do it; all you have to do is get started.

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