Invest in Your Future: 6 Ways to Get Started

It is never too late or too early to start investing, and the best time to get started is always now. The field of personal finance and investments is very dynamic; even when global economies are faltering, investors will always have some sort of instrument to put their money in for the purpose of reaping profits.

When it comes to beginner investors, some instruments are better than others. The first rule to remember is that investments always carry a certain level of risk; for this reason, a savings account in a bank that guarantees deposits through an insurance fund cannot be considered an investment. With this in mind, here are six investment options for new investors:

1 – 401(k) Plans

For many employees of American firms, 401(k) accounts are their introduction to the world of investments. These accounts are parts of larger funds that offer investment options through debts instruments such as stocks, bonds or mutual funds. At their very basic, 401(k) accounts are retirement vehicles that offer greater tax benefits than salary raises, and some employers even offer to match plan contributions.

2 – Certificates of Deposit

Cash that is kept in savings, checking or money market accounts is usually readily available for withdrawal with little to no penalties; as such, the interest paid by these accounts is not very attractive. A certificate of deposit (CD), on the other hand, offers more enticing rates of interest and steeper penalties for clients who fail to adhere to the terms of the investment contract. Although CD rates have not been the greatest in the wake of the global financial crisis, banks that offer them are starting to get competitive once again.

3 – Real Estate

There is a certain financial adage that says: “every homeowner is a property investor.” Unlike 401(k) accounts and CDs, investors who opt for real estate get something tangible in return for their money; however, this is an investment that requires careful management. From the down payment to mortgage affordability ratios and from the potential equity to the exit strategy, successful real estate investors must make a commitment to learning about how they can extract profit from their properties.

4 – Index Mutual Funds

For many decades, mutual funds have served beginner American investors by providing them with a leveraged gateway to Wall Street. In essence, mutual funds are baskets of financial instruments managed by financial professionals who do everything possible to maximize return on investment (ROI) as well as safeguarding the funds contributed by investors. Index mutual funds are managed portfolios of bonds or stocks that aim to track benchmark indices such as the Dow Jones or the S&P 500. These index funds are recommended for beginners due to their lower investment amount requirements and their full management.

5 – Index Exchange Traded Funds

A special financial instrument such as the exchange traded fund (ETF) can be ideal for beginner investors because of low management fees and tax-efficiency features. Index ETFs are similar to index mutual funds; however, they can be purchased and sold just like stocks, which makes them affordable under some circumstances. Beginner investors can choose a few of these ETFs for a balanced, yet sophisticated, portfolio.

6 – Dollar Cost Averaging

When looking into index ETFs or any other security that can be traded on the New York Stock Exchange or the NASDAQ, beginner investors should learn about dollar cost averaging for the purpose of avoiding the inefficient strategy of “market timing.” With dollar cost averaging, investors look at the monthly fluctuations of securities prior to making a decision on how much they should invest each month. The idea is to avoid investing a lump sum; instead, investors can spread out their investment amounts over time and monitor their potential for ROI.