The Importance of Investing Early

The post The Importance of Investing Early by Patton Hunnicutt appeared first on Benzinga. Visit Benzinga to get more great content like this.

Saving and investing are both desirable activities, but they are not exactly the same thing. When you save money, you know how much you will get when you take the money out. You don’t expect that money to work for you and grow as you do with an investment. 

You could save money in a piggy bank, in a checking account that pays no interest or in a bank that pays very minimal interest. When you need it to pay for something, it’s right there.

When you invest money, you put your money to work for you, hoping to get more money out in the future. You put your money in investment vehicles of varying levels of risk. 

You also commit to longer-term investments that have the potential to make money for you but may not be as liquid (or easy to quickly sell) as your savings. Even though you can turn your investments into savings later on, you invest with the direct purpose of increasing your money, so you are willing to let it be tied up for a period of time.

Why Should You Start Investing Early?

The sooner you start investing, the more time you have to take advantage of compound interest. Over time, compounding will significantly increase your long-term returns and put you in a better financial situation than if you had started investing later.

Starting to invest early has the potential to help you reach your financial goals, such as saving for your retirement plan. Investing early also provides the opportunity to take more risks with investments since you have more time to recover from any losses should they occur.

Creating investing strategies early is a great way to gain financial literacy and become familiar with the stock market. The sooner you start investing, the more time you have to learn about how it works and how to make smart decisions. With enough time and knowledge, investing can become a lifelong activity that provides financial security and stability.

When Can You Start Investing?

Adults can invest any time when they have money available for that purpose. You can set up a bank or brokerage account if you are older than 18. As soon as you have a bit of money saved, consider investing in the stock market and other financial markets so you can grow that money into a substantial nest egg.

You can use many types of accounts for your investments. Benzinga’s guides to investing in stocks or bond funds are a great place to learn more. Do your research and invest small so you can see the results you get without risking large sums of money. 

It’s a good idea to start saving and investing with your first job. Once you start working, get in the habit of saving money from your paycheck. Some companies let you set up automatic deposits into more than one account. 

Once you are on track, help your kids on their investment journey. You can open a custodial account for your child. Many brokerages that allow custodial accounts also feature kid-friendly educational programs that help your kids learn about investing.

What Should You Invest In?

High-return investments are synonymous with high risk. Taking the chance on high returns also means you could lose most, if not all, of your invested money, which is also called the principal. It’s important to match your risk profile with the company and product you’re considering.

Lowest-Risk Investment Ideas

• Certificates of deposit: Low-interest rates mean that you won’t get rich from putting your money in certificates of deposit, but this safe investment vehicle can be a place to put some of your money if you are uncomfortable with the prospect of losing your principal.
• High-yield money market accounts: Although rates are low, a high-yield money market or savings account pays more than the average checking or savings account with little to no risk of principal. 
• U.S. Treasury Bblls: Backed by the full faith and credit of the U.S. government, Treasury bills, or T-bills, are sold in terms ranging from a few days to 52 weeks. Bills are typically sold at a discount from the par amount. When a bill matures, you are paid its par amount. If the par amount is greater than the purchase price, the difference is your interest.

Medium-Risk Investment Ideas

• Stocks: Choose strong stocks with potential value. Learn as much as you can about investing in the stock market from trusted sources like Benzinga or Investor.gov. If you like, you can follow advice from value investors like Warren Buffett. Avoid penny stocks trading less than $1, and consider buying fractional shares of expensive stocks like Amazon.com Inc. (NASDAQ: AMZN). Investing in exchange-traded funds (ETFs) made up of a combination of many stocks can be a great way to diversify your investments.
• Bonds or bond funds: Bonds are fixed-income securities that provide investors with fixed periodic payments and the eventual return of principal. Bond mutual funds and ETFs are hybrid instruments that track a bond index in an attempt to replicate its return. 

Higher-Risk Investment Ideas

• Consider investing in initial public offerings (IPOs) and initial coin offerings (ICOs): If you’ve been investing for awhile and have gained some experience, you might want to invest in ICOs and IPOs. While priced higher than they will trade in the first few weeks after their debut, they have the potential to grow quickly. 
• Known and valuable cryptocurrencies: The cryptocurrency market is naturally volatile, but certain tokens have performed better than others. Try to avoid meme tokens that appear quickly and trade at a fraction of a penny because they may not last. Popular tokens like Dogecoin that trade under a dollar can have potential. Be sure to understand that cryptocurrency is considered to be highly speculative.
• Forex: Investing in foreign currency, while highly risky, could be a good way to make money long term if you believe one currency is strengthening over another. However, don’t venture into niche currencies that could be too confusing or volatile, especially if those countries are experiencing political unrest.
• Commodities: Investing in commodities could be helpful if you look into precious metals like silver, gold or platinum. These high-risk investments can be used to hedge against inflation or economic losses. 

Complex Investments You Should Learn

In addition to the investments discussed above, the financial world offers a myriad of complex and exciting investment opportunities. Usually, the newer or more complex an investment, the higher amount of risk involved. As a beginner, remember that you don’t need to invest in everything. Speak to a broker and do your research before considering more diverse financial instruments. 

Open a Brokerage Account Today with Benzinga’s Favorite Stock Brokers

Whether you want to open a retirement account or a simple brokerage account, the first step to begin your investing journey is to open a brokerage account. Benzinga compiled a list of the highest-rated stock brokers and retirement accounts available today.

Investing Early: A Good Idea for Everyone

Investing early is a good idea for everyone. You don’t need to throw your money into the first investment opportunity you find. Look at several different options that are appropriate for you, your children or your family, and return to Benzinga for more financial information at any time. The more you learn, the more profitable these investments can be.

Frequently Asked Questions

The post The Importance of Investing Early by Patton Hunnicutt appeared first on Benzinga. Visit Benzinga to get more great content like this.