Why Is Investing Important?
There are typically two ways to earn money. The first is through a job earning a wage. The second is through investing. But why is investing so important? Investing can help fund your retirement, earn a passive income, and build your net worth. Investing makes the money you earn work for you.
To help you get started on your investment portfolio, we’ve rounded up some investing basics. If you think investing is just for people shouting on the floor of a stock market or with desks full of screens, think again. Investing is for all budgets and comfort levels. From why you should invest to where to invest money, here’s your go-to guide to investing in stocks, cryptocurrency, real estate, and more.
What Is Investing?
Investing is when you put money and resources into something or someone to earn a profit or income. You can invest in a person through a start-up business, for example, or real estate to sell it for more than you paid. Whichever investment you put your money into, the end goal is to make a profit. While many investments turn into more money than you put in, some investments don’t. Every investment comes with a different level of risk and a different timetable for making money.
When Can You Start Investing?
For many, the goal of investing is to reach a future financial goal. This may mean retirement, buying a home without a mortgage, or paying for college. Before you start investing, you’ll want to consider your plans for the future. Think about why you’re looking to invest and what you’re hoping to do with any income or profits. You can start investing as soon as you start earning money. If you’re given money as a gift or through parents or grandparents, you can start investing before you even have a job with some parental assistance.
Your future plans and goals will help you determine which investments you go with. You’ll also want to think about how big of a financial goal you have. If you’re hoping to retire early and live mortgage-free, your investments may need to turn out a larger profit than someone with a smaller goal like paying off a bill.
Types of Investments
There are several different types of investments. When you start, it’s always good to make sure you have a wide variety of investments in your portfolio. Think of it as diversifying your risks and making sure your money isn’t all tied to one investment. This way if one investment falls through, you still have others to fall back on. Here’s a little round-up of some of the most popular forms of investing.
The stock market is one of the easiest and most common places to invest. Within the stock market, there are also a wide variety of stocks and price points to choose from. While some stocks may sell for a few cents others sell for several thousand each.
You can choose your stocks yourself, use a stockbroker, or invest in a plan featuring multiple stocks. You can also earn shares of stocks through your employer in some cases.
Retirement funds are also tied to the stock market, however, they are invested differently than if you bought shares of stocks on your own. These funds are paid throughout your working years by yourself and sometimes your employers. Your money is invested in a stock plan during each paycheck. The risks tend to be lower with a retirement fund as the goal is long-term earnings.
Once you stop working for an employer, your money can stay in this retirement fund until you’ve reached retirement age. Even though you’re not contributing anymore, it will continue to go up and down with the stock market. This works similarly with an Individual Retirement Account (IRA) or mutual fund. These are stock market retirement plans that are designed to help you earn money towards retirement income later in life.
Cryptocurrency is a digital currency. Just like with dollars, you can invest using cryptocurrency or exchange money to buy coins or tokens of certain cryptocurrencies. Different cryptocurrencies each have different values. The first and most popular cryptocurrency is Bitcoin. There is also Ethereum and Dogecoin. Each cryptocurrency has a different value and risk level associated with investing.
Real estate is an investment many people will make in their lives. Owning a home is a form of investing. You pay a certain amount for your home and you hope over the years your home appreciates to sell for more than you bought it for. While this isn’t always considered a profession, you can also make a living or a side hustle in real estate investing when you’re using real estate to make an income or profit outside of your primary residence. Owning a rental property, for example, is a form of investing where you also earn a passive income on the rent you receive each month.
Investing isn’t just purchasing stock or property to make money. You can also invest in a person, an idea, or a small business. With this form of investment, you’re giving your money to a person or a company in exchange for a percentage of the profits. Investing in new technology, for example, could pay off big time if the technology takes off and you’re getting a percentage of the profits.
In addition to cryptocurrency and the stock market, you can also invest in precious metals. Gold, palladium, and silver, for example, are all precious metals that can be bought and traded as commodities. Each metal has its own value and its own level of risk. Your investment is tied to the value of that metal at the time.
Where Can You Invest Your Money?
Choosing where to invest your money can seem overwhelming. One easy way to narrow down your choices is by determining your risk level. Low-risk investments are certain stocks, mutual funds, retirement accounts, and the home you live in. Riskier investments can also include stocks, cryptocurrencies, and real estate you’re choosing to flip and sell quickly for a profit. It’s also common to split your investments between more stable, low-risk investments while having a couple of higher-risk plays in your portfolio.
In addition to the level of risk you’re comfortable with, you’ll also want to factor in your budget for investing. If your budget is small, start slowly and go with a long-term investment such as a retirement plan or an IRA. You can then dabble in a few stocks and let time do the rest. As you have more money to invest and your risk tolerance increases, you can boost your investments by going with higher stakes funds and stocks or purchasing an investment property or second home.
Is Investing Worth It?
While Investing has its risks, it also has very lucrative rewards. Whether you have a few hundred or a few thousand dollars to invest, remember that every penny counts. The sooner you start investing, the longer your investment has to grow. From stocks to real estate, there’s no shortage of investments for all budgets and comfort levels. Investing even a small portion of your income will help boost your net worth and set you on a better path to retirement and other financial goals in the future.