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Investing is a critical part of total financial health. It can mean the difference between barely scraping by on Social Security later on in life or living comfortably and having the money to do things you want to do. There are many ways to invest, but regardless of what avenue you choose, one thing is true—the earlier you start, the better returns you can get.
Investing is defined as when someone commits money or other financial assets to something with the expectation to gain a financial return.
Find out how to start investing today with this guide.
What You Can Invest In
Whether you have been investing for years or you are a new investor, it is important to understand the different types of investments. Each has different purposes, risk levels, and expected returns.
Some require more of a financial commitment but have the potential for larger returns; others require less of a commitment or have less risk, but also will have less of a return.
Investing in Stocks
A stock is a tiny piece of ownership in a business. Corporations and companies issue stock in two types: common stocks and preferred stocks.
You can invest in stocks in several ways:
Using a Financial Advisor to Invest in Stocks
For many years, your only option was a financial advisor, who navigates Wall Street for you, advises you on the best groups of and individual stocks to buy and sell, and actually files the transactions for you in your investment account. Though you will often have to pay management fees, having a seasoned advisor to help you with your money can help ensure that your portfolio makes sense for your investment goals.
Using a Robo Advisor or Online Platform to Invest in Stocks
You can sign up with a robo advisor, which is a software that will automatically buy and sell your stock based on the parameters you set. You can also use one of the many online stock trading brokerage firms dedicated to DIY investors who want more control over their investments. Not all of these options are expensive; in fact, some platforms are completely free.
Using a Micro-Investing App to Invest in Stocks
You don’t necessarily need a lot of money to invest either. In fact, micro-investing apps such as Acorns and Betterment are highly popular—and they allow you to invest tiny amounts of money at a time, such as rounding up your debit card purchases to the nearest dollar and investing the change.
Expected Returns
Returns can vary widely depending on the type of stocks you own and how the companies you invest in do over time. The average return you can expect is about 12% over the long term, while in a booming economy you could see returns of up to 30% or higher, though these higher returns are not normal and usually regress to the mean.
The risks involved with stocks are obvious; in order for you to get a return, the company you’re investing in needs to perform well. Companies who take an economic turn for the worse could end up cutting into your returns—or even into your initial investment.
See the full guide here: How to Start Investing
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