If you’re new to investing, you’ll want to go through our checklist of investment basics, intended to guide you through beginning investing. This list is far from comprehensive, but it should get you going on the right path.
1. Start by building up adequate cash reserves. Before you invest anything, make sure you have put aside enough cash to cover your household’s expenses for at least six months. This is to protect you in case of an unexpected emergency such as an extended stint of unemployment, disability or illness.
2. If your place of employment offers a 401K plan (especially if the company matches your contributions), fund this account.
3. Research different investment strategies and come up with a list of ways you’d like to invest your money, even if you can’t start investing quite yet. It’s always best to diversify investments (invest in a variety of ways) so that you won’t be hit as hard if one type of investment falls in value.
4. Decide if safety or quick growth potential is most important to you. This will depend greatly on what stage in life you are in. You’ll have to decide how much risk you are willing to take, and how much you need each investment to be a more sure bet. Do you have a lot of time over which to let the money grow? Or do you need to access this money again soon? Are you looking for fast growth or long-term, slow but steady growth? Once you’ve decided which is most important to you, you can start narrowing down investment strategies to fit your needs.
5. If safe investments are most appealing to you, you may want to check out money market accounts such as Treasury bills, CDs (certificates of deposit), banker’s acceptance slips, and commercial paper. You may also want to check out municipal and government bonds. Some corporate bonds are regarded as relatively safe investments also.
6. If growth potential is more important to you, you may want to look into the stock market, investment grade bonds, and junk bonds. If you really want to take high risks, you can consider day-trading stocks – this is buying stocks with the intention of quickly turning them around for profit, sometimes in hours or days. Day trading is extremely risky and requires vigilant monitoring, and even the most expert day traders lose big sometimes.
7. Consider the tax burdens as you investigate methods of investing. IRAs and 401Ks are generally regarded as good tax shelters.
8. Read, read, read. You’ll want to educate yourself on this topic as much as you can before you make any actual purchases. The world of investing is complex. Go to seminars, research on the Internet, take books out of the library and meet with a financial advisor so you’ll understand what commitments you’re making. Don’t be intimidated; investing in your financial future will bring rewards that make it worth the time needed to research your opportunities!
