A decision to begin investing should include two key factors: money that is completely free from any obligations and determined goals. Decide if your investment is a short or medium term goal, such as saving for an electronic gadget or new furniture, or if it is a long term goal, such as retirement. Another factor to consider before you begin investing is whether you wish to have immediate access to the money you are investing. After you have outlined your goals for investing, you are ready to open an account and get started.
What type of investment account is best for you?
There are many types of investment accounts available. Do your research and choose the one you feel most comfortable with.
Certificates of Deposit (CD’s) – Bank accounts that offer a guaranteed rate of interest for a specific time period. A penalty is assessed for early withdrawal.
Discount Brokerage – A brokerage house that purchases or sells securities on your behalf for a low rate of commission.
Full Service Brokerage – A brokerage house that purchases or sells securities on your behalf and offers a variety of services such as planning assistance and investment advice.
401(k) or 403(b) Plans - Retirement savings plans that are funded by both employee and employer contributions.
Individual Retirement Accounts (IRA’s) - An individual plan that allows you to make yearly contributions that grow tax-deferred. There are several different types of IRA’s available.
529 Plan - A savings plan that gives tax advantages to encourage saving for future higher education expenses.
Money Market Account – An account that allows individual investors to participate in managed investments with easy access to their funds for withdrawals.
Stocks - Ownership shares in a corporation that entitle the holder to share in a portion of the profit the company may make, as well as a portion of the losses.
Mutual Funds - A company that makes investments on behalf of investors with similar goals. As a shareholder, you participate in the fund’s gains, losses, income and expenses in an amount proportionate to your investment.
Bond Funds – Can be issued by a corporation, a municipality or a government agency, and are long-term promissory notes to repay the principal on a specified maturity date, along with periodic interest payments over the life of the bond.
Annuities - An insurance contract into which you make either a lump-sum contribution or periodic contributions to an insurance company.
Real Estate – Purchasing land and any dwellings on that land with the plan that the value of the property will increase.
Once you choose the account that best suits you, devise an investment strategy:
- Make sure an emergency fund is in place so you can avoid accessing your long term investments, such as stocks. This can cause you to veer off track with your goals for investing and can have serious tax consequences.
- The sooner you begin to invest, the more opportunity your money has to grow. Stick with it – your investment can compound over time.
- Invest in different types of accounts. This ensures all of your eggs are not in one basket.
