How to Invest Your Money When You Don't Know Anything About It
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If you’re like most people, investing money is probably something you try to avoid thinking about as much as possible. You probably don’t want to think about how your savings will grow over time, because that feels like a distraction from more important things in your life.
But the truth is that avoiding investing your money also means avoiding growing it over time. Saving money for the future and not spending it all at once isn’t really an avoidance of investing – it’s actually just a kind of investment.
It’s just not the kind of investment that grows your money and puts you on a solid financial foundation for the future. So, if you feel slightly terrified by the idea of investing but know that you should do it anyway, this guide can help you get started with what could be a pretty scary process for some people.
Decide What You Want Your Money to Do
Investing money is a long-term game. The more you can get it to grow over time, the better off you’re going to be when you need it later.
But investing your money isn’t just about growing it. If you invest your money and it grows by 10% while inflation is at 2%, you just lost 8% of your buying power. In other words, you’re better off with savings.
Where you invest and how you invest it will have a big impact on how fast your money grows. Different types of investments are riskier than others, but they’ll also grow faster.
So, when you’re deciding what you want your money to do, you have to consider what kind of return you’ll get for the risk you’re taking on. Riskier investments grow faster, but they’re also riskier.
Get a Basic Understanding of the Investment World
The first step to investing is to start getting a basic understanding of how the investment world works.
It’s easy to feel overwhelmed by terms like “stock” and “bond” and “mutual fund,” especially if you don’t have any experience with them.
But the more you know about the different types of investments out there, the better off you’ll be.
You don’t have to become an investment expert overnight, but you should know at least the basics.
You should also make sure to understand how different investments are tied to certain parts of the economy. For example, a lot of people lost a lot of money during the most recent recession because they didn’t fully understand how the housing market ties into the economy.
Even if you don’t know the exact ins and outs of the market, you should at least understand the basic idea of how stocks and bonds work. You should also understand how risk and investment return are tied together.
Open a Brokerage Account
The next step in the process of investing your money is opening a brokerage account.
A brokerage account is basically an account that you use to buy stocks, bonds, and other assets that are typically considered to be “investments.” You can open a brokerage account with pretty much any major financial institution – there are plenty of good options out there.
And you don’t have to worry about dropping a ton of money into it. The easiest way to start investing is to open a “cash” account and put in a very small amount of money.
You can open an account with just $100 or so and then start putting money into it over time.
You don’t have to buy a single “thing” with your brokerage account. You just have to open the account and then buy and sell assets with it.
Pick an Easy-to-understand Asset Class to Start With
Investing your money is essentially just buying a piece of something that someone else owns.
The thing you’re buying might be a company that you want to support, or it might be some kind of commodity that you think will go up in value because lots of people will want it. It’s a lot easier to start with the second one.
Commodities are a very easy-to-understand asset class to get your feet wet with investing. You don’t have to know a whole lot about it, and there are plenty of companies that sell investment products based on commodities.
When you start investing with commodities, you’re basically betting on the price of the underlying commodity.
You’re essentially saying, “I think the price of this thing will go up.” If you’re right, you’ll make money. If you’re wrong, you’ll lose money.
Don’t Be Afraid of Mutual Funds and ETFs
If you’re just getting started with investing, you should know that many people recommend that you avoid “picking stocks” altogether.
This is partly because picking stocks is hard, and partly because there are a lot of people who want you to pick the wrong stocks so they can make more money.
There are a few easy ways to invest in a bunch of different companies without having to pick individual stocks and hoping they go up. For example, you can buy shares in an index fund. An index fund is a type of mutual fund that just buys a bunch of different companies in a variety of different industries.
It’s super simple, and you can get started with just a few hundred dollars. Another great option is to buy shares in an exchange-traded fund (ETF).
ETFs are basically like index funds, but you can buy shares in them and sell them on the stock market.
Stick with It
This is probably the most important part of this entire guide.
You have to actually commit to investing your money over a long period of time in order for it to have any real effect on your life.
There will be days when you feel like quitting and days when you feel like you don’t have any money to put in. You have to stick with it.
It’s okay if you don’t get it right the first time. In fact, it’s almost certain that you won’t. There are plenty of resources out there to help you learn how to invest in the best way possible. And it’s okay if you don’t understand everything right away.
Just keep getting better at it, and your money will grow.