Generally, when income covers housing, utilities, loan payments, groceries, and the occasional trip, and you’ve saved up three to six months’ of expenses in an emergency fund, it may be a good time to start looking into how to start investing. Investing in the financial market is one path toward planning for retirement. Social Security accounts cover 38% of senior citizens’ income, so where does the rest come from?
The 6th Avenue Team at Ingalls & Snyder, LLC in New York City takes the time to truly know all the investors we work with. People commonly seek financial advice during times of transition – when they’re getting married, buying a house, traveling considerably, welcoming a new baby into the world, sending the kids off to college, facilitating a divorce, inheriting a substantial sum of money, starting a new business venture, or nearing retirement. Learning how to start investing will make a big difference in your ability to achieve financial goals, no matter where you are in life.
Step 1: Decide How to Invest in Stocks
How to invest in stocks is all relative to individual goals and circumstances:
· Do your financial goals require more funds now, or later?
· How many years do you have to grow your investment egg?
· What is your risk tolerance?
Generally speaking, heavy investment in S&P 500 Index stocks is a reliable long-term strategy. Over the last century, the stock market has returned about 10% a year, outperforming all other kinds of mutual funds. Index funds that mirror the performance of the entire stock market index is a good option for beginners because it allows you to spread your risk across a diverse range of companies, industries, and geographic areas. A passively-managed fund works best for most people.
If you’re saving for a short-term goal within the next five years — such as making a down-payment on a mortgage, buying a new car, or getting married — you may consider investing in a money market fund or a bond fund. While the returns are lower than the stocks, the risk of losing the money you put in over the next five years is also considerably lower.
When you meet with the 6th Avenue Team, we’ll ask you about your investment goals, risk tolerance, and how active you want to be in managing your account. We act as “traditional brokers” in the sense we believe in balanced portfolios with bonds, ETFs, index funds, mutual funds, and stocks, but we can also help you explore capital growth strategies like small cap stocks, bonds, international equities, derivatives, and emerging technologies if you wish.
Step 2: Decide Whether You'll Be Investing in Stocks or Other Types of Securities
Whether you’re investing with a 401K, Roth IRA, or brokerage account, you’ll need to choose which type of securities are appropriate for your circumstances.
· Stocks – With stocks or equities, you own a share in a company. The company uses your investment to pay off debt and develop new products. Your profit goes up when the value and financials of the company increase.
· Bonds – With bonds, you loan money to a company or government entity. After a certain number of years, the borrower agrees to repay you in full. In the meantime, you collect interest payments.
· Mutual Funds – With mutual funds, you buy a mix of investments selected and managed by an individual company. Generally, the diversification makes a mutual fund less risky than an individual stock, but there are high-risk funds as well as the lower-risk index funds and money market funds.
· Exchange-Traded Funds (ETFs) – With ETFs, you’re investing in a basket of securities (stocks, bonds, and commodities) that you buy and sell through a broker. Like mutual funds, you benefit from diversification. Like stocks, you choose the risk level that suits you and trade with ease. Many beginners start with index fund ETFs for their low management fees compared to mutual funds.
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