I recently met with an insurance and investment pro, who asked my husband and me about our financial goals and ideas. To say the least, neither of us are what most people would call “investment literate”. If you started talking to us about equity capital market deals, or mergers and acquisitions news, we would stare at you blankly before changing the subject. But learning about how to invest your money is vital to becoming financially independent.
Most people are first introduced to investing in the simplest form – a savings account. Deposit your money and watch it grow… by a measly quarter of a percent. If you’re able to save the minimum deposit of $500, you could get a better interest rate with a Certificate of Deposit – the highest current rates are around 1.5% APR, and that is an easy, safe way to grow your money incrementally.
But let’s face it – tiny returns on your money are not what any of us want. We want real results! But with greater returns comes greater risk of loss – so carefully evaluate how much you could stand to lose.
Mutual funds tend to be a semi-safe vehicle for growing your money, but it’s important to buy the kind that has the fewest fees involved. A mutual fund is a single financial product that combines several similar stocks, bonds or money market funds into one. Combining the products reduces the risk of loss if one individual fund does poorly, and they generally offer much better overall returns than CDs or savings.
Single stocks are riskier but potentially more lucrative than mutual funds. You buy a share of one particular company, and if that company is successful, you make money. If the company tanks, you could lose your whole investment. My husband wisely invested some money in Procter and Gamble stocks back in high school (the makers of Tide, Pampers, Gillette, Crest, Cascade, and many other household products), and has more than tripled his money since then. If you choose to invest in single stocks, research the company to see how their business is doing and if they may be poised to do very well in the near future, or if they may fall short.
Bonds are an investment similar to Certificates of Deposit, in that you submit your money for a certain amount of time, and can withdraw it with interest after a certain date. They can be issued by governments (at any level – national, state, municipal), credit institutions, and companies, and carry varying levels of risk. For example, the city of Harrisburg, Pennsylvania, had its’ municipal bonds downgraded to “junk” status after the city went bankrupt, since it was unlikely that the city would be able to repay the original bond amount along with interest within the allotted time frame.
If you’re interested in improving your investment portfolio and knowledge, try contacting a brokerage firm that will be willing to discuss your financial goals and set you up with investments that will mesh well with your income and goals.