As I cried on my father’s shoulder, he gently explained that investments came with the possibility of great reward or devastating loss. My investment journey started pretty rocky. I trusted a friend’s advice who knew less than me. I lost every penny. I had invested in a stock that went down to nothing. No one insured my investment, so I lost everything I had planned to use to buy a car.
I had to start saving all over again. Instead of using risky investments, I put all my “car” money into a savings account. Once I had saved enough for my car, I continued “saving” money but cautiously entered the investment arena again. Instead of listening to friends for their top stock picks, I did my own research.
I hope what I learned will help you decide which type of investment is right for you.
An investment account is riskier and not usually insured. Investment accounts typically require a minimum of $50. Investment or brokerage accounts are better for medium- to long-term goals since it takes time to access the money. In most years, investment accounts have a higher rate of return than savings accounts.
I opened a brokerage account where I could choose what stock I wanted to buy. I selected stocks for brands I used, like AT&T, Apple, and Xerox. I could only afford to buy one or two stocks at a time, but they grow and split. Reinvesting the dividends (a reward, cash or otherwise, that a company gives its shareholders) helped them grow.
Next, I learned about mutual funds, which opened up a new way of investing. A mutual fund is a group of stocks. A manager buys and sells stocks within the mutual fund. As an investor, I buy a share of the fund, which means I own a part of all the stocks in the fund. There are four main categories: money market funds, bond funds, stock funds,s and target date funds.
Money market funds include investments issued by governments and short-term investments from corporations. They are low-risk but grow slower than stock funds. Bond funds incorporate bonds from various sources to have higher risk and return than money market funds.
A common type of stock mutual fund is an S&P 500 or a growth mutual fund. The stocks within the fund coincide with the fund’s name and goal.
Fund managers design target-date funds to invest based on a date. A 2050 fund primarily consists of stocks early, with higher risk and returns. As the fund approaches 2050, the managers invest more in bonds to lower the risk. This type of fund is great for long-term goals like retirement.
You can include mutual funds in IRAs, Roth IRAs, and Educational funds. Anyone can open a mutual fund with a minimum balance.
I learned the hard way: don’t ask friends what stock to buy. Do your own research. A mutual fund is a great place to dip your toe into the wonderful–and often unpredictable–world of investing.
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