Investment in the stock market is the primary way for Americans to cumulate wealth and long -term target savings for retirement. But the best way to find investment funds may be scared. Not necessarily like this.
All in all, this is the method of investment:
- Decide whether to adopt the method of “doing it by yourself” or “managing me”.
- Determine how long your financial goals and the funds you plan to invest.
- Choose the type of investment account (401 (K), IRA, taxable brokerage account, education investment account) you want to use.
- Open an account.
- Choose an investment that meets your risk tolerance (stock, bonds, common funds, real estate).
The following is a detailed information about how to put your cash into use in the right way.
1. Determine how much help you want to get
Below we will introduce how to invest in detail (from setting goals to selection of the best place to open account to select investment tools). But if the DIY route sounds not suitable for you, you don’t have to worry.
Many stores prefer some people to invest for them. Although this was once an expensive proposal, it is quite affordable now -even cheap! – Due to the emergence of automated investment portfolio management services (also known as robotic consultants), professional assistance is hired.
These online consultants use computer algorithms and advanced software to establish and manage customers’ investment portfolios, provide all services from automatic reconnection to tax optimization, and even get manual help when you need it.
All others, let us continue to explore the best way for investment funds.
2. Set a goal for your money and set the last period
To figure out how to invest, we must first determine your investment goals and when to achieve these goals.
- Long -term goal: General goal is usually retirement, but you may also have other goals: Do you want the down payment for tuition fees for houses or college? Buy your dreams of your dreams or your anniversary trip after 10 years?
- Short -term goal: This is the holiday of next year, the house you want to buy next year, the emergency reserve or your Christmas deposit.
In this article, we mainly pay attention to long -term goals. We will also discuss how to invest without specific targets. After all, the goal of increasing money itself is a good goal.
Generally speaking, you should not invest for short -term goals. If you need to save funds within five years, please check our suggestions on how to invest in short -term targets.
Please also read: the definition, type, and importance of finance
3. Choose an investment account
To buy most types of stocks and bonds, you need an investment account. Just as many bank accounts are used for different purposes (checks, savings, currency markets, deposit certificates), there are also some investment accounts to understand.
If you invest in specific purposes (such as retirement), some accounts will provide tax discounts. Remember, if you withdraw funds in advance, or for unqualified planning rules, you may be taxed or fined. Other accounts are common and should be used for targets that are not related to retirement -dream holiday houses, ships matched with them or future house decoration.
The following are the list of some most popular investment accounts:
If you invest in retirement:
- 401 (K): You may already have 401 (K), and many employers provide the plan and pay directly from your salary. Many companies will match your contribution within a certain limit -if your company does this, you should contribute at least enough funds to get the matching funds, and then invest in other places.
- Traditional IRA or Roth IRA: If you have paid 401 (K) or not yet, you can open a personal retirement account. In traditional IRA, your payment can be exempt from tax, but the distribution of retirement is taxed as ordinary income. Roth Ira is a close relative of the traditional version. It has the opposite tax benefits: payment is carried out after tax, but funding is exempt from taxes, and the distribution of retirement is not taxed. There are also retirement accounts designed for self -employed people.
If you invest for another goal:
- Taxable account. Sometimes it is called non -retired account, which is a flexible investment account and is not specified for any specific purpose. Unlike the retirement account, the payment amount is not stipulated, you can withdraw the funds at any time. These accounts do not have specific tax discounts. If you are saving for retirement and have used the above options, you can continue to save in the taxable account.
- University savings account. Like retirement accounts, these accounts provide tax benefits for university savings. 529 accounts and COVERDELL education savings accounts are usually used for university savings.
In addition to 401 (K) (provided by your employer), you can open these accounts online.
4. Open an account
Now you know what type of account you want, and then you need to choose an account provider. There are two main options:
- Online brokers will allow you to manage your accounts, buy and sell various investment, including stocks, bonds, funds and more complicated tools. For investors who want to have a variety of investment choices or like to manage account management in person, online brokers’ accounts are a good choice. The following is a way to open a brokerage account.
- The robotic consultant of the investment portfolio management company uses the computer to complete most of the work, and establish and manage the investment portfolio based on your risk tolerance and goals. You need to pay the annual management fee for the service, generally about 0.25% to 0.50%. Robot consultants often use funds, so if you are interested in individual stocks or bonds, they are usually not a good choice. But for those investors who like to not intervene, they may be ideal choices.
If you are at the beginning, don’t worry. Usually you can open an account without initial deposits. (Please refer to the best agent lineup we provide for beginners investors.) Of course, you can invest only before you save funds in your account. In order to obtain the best results, you need to do it regularly. You can set automatic transfer from a check account to an investment account. If your employer allows, you can even transfer directly from your salary.
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5. Choose investment that meets your risk tolerance
Find out how to invest in asking Where You should invest. The answer will depend on your goals and willing to bear more risks to exchange for higher potential investment returns. Common investment includes:
- Stock: You think the company’s personal stocks that will increase.
- Bonds: Bonds allow companies or government to borrow money to fund projects or re -financing for other debt. Bonds are regarded as fixed income investment, and usually pay interest to investors. Then return the principal on the set date. (There are more information about how bonds work here.)
- Common Fund: Investment in funds in common funds, index funds or exchanges trading funds, etc., allows you to buy many stocks, bonds or other investments at one time. The common fund has gathered investor funds and used a basket of investment that meets the target of the fund to achieve real -time diversification. The fund can actively manage, and the professional manager chooses the investment used, or they can track the index. For example, the Standard 500 Index Fund will hold 500 companies in the United States.
- Real estate: Real estate is a way to diversify investment portfolios in addition to traditional stocks and bond combinations. This does not necessarily mean buying a house or becoming a landlord -you can invest in real estate investment trust funds, it is like a real estate common fund, or investing through online real estate investment platforms such as Fundrise, which brings together investors’ funds.
In order to grow, invest in stocks and stock funds
If you have high risk tolerance and can withstand volatility, then you will need an investment portfolio that mainly includes stocks or stock funds. If your risk tolerance is low, you will want an investment portfolio containing more bonds, because these bonds are often more stable and less volatile. Your goal is also important for shaping your investment portfolio.
For long-term goals, your investment portfolio can be more positive and bear more risks-may bring higher returns-so you may want to have more stocks than bonds.
If you have high risk tolerance and can withstand volatility, then you will need an investment portfolio that mainly includes stocks
No matter which method you choose, the best way to achieve long -term financial goals and minimize risk is to disperse funds to various types of assets. This is the so -called asset allocation. Then, in each asset category, you also need to make a number of investment -this is the so -called diversity.
- Asset allocation is important because different assets (stocks, bonds, ETFs, common funds, real estate) have different responses to the market. When one person rises, the other may fall. Therefore, determining the correct combination will help your investment portfolio to cope with changing markets in the process of achieving goals.
- Diversification means a series of assets across different industries, companies, and geographical areas. It is like a subset of asset allocation.
It takes time and professional knowledge to establish a diversified stock and bond investment portfolio, so most investors will benefit from fund investment. Index funds and ETFs are usually low -cost and easy to manage, because only four to five funds may be established to establish enough diversification.
Here are more wonderful financial and accounting books to further help and guide you:
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