Investing and saving both involve setting money aside for later, but there\u2019s a key benefit to the former: In an investment account, your money is working to unlock valuable gains available in the market. <\/p>\n\n\n\n
Buying a rental property is a tangible form of investing because you can collect rent. However, it can also require a substantial initial investment, research, and time. Often, the easiest and best way to start investing is to buy stocks and bonds.<\/p>\n\n\n\n
Stocks and bonds can seem like abstract concepts if you\u2019re new to investing. But these common types of investments<\/a> are relatively simple to understand once you get beyond the jargon.\u00a0<\/p>\n\n\n\n A public company (meaning, a company that you can buy stock in) is owned by its shareholders. When you buy a company\u2019s stock, also known as a share, you\u2019re investing in the company and technically become a partial owner. <\/p>\n\n\n\n Owning a few shares doesn\u2019t mean you get to control what the company does or who it hires. However, you can receive a portion of the company\u2019s earnings, which it can pay out as dividends. Additionally, if the company\u2019s overall value increases, perhaps because it released a new product that\u2019s selling well, the value of your shares also increases. <\/p>\n\n\n\n You can earn returns on your investment from the dividends, and by selling your shares for a profit after they increase in value. <\/p>\n\n\n\n Governments and companies can borrow money by selling bonds. Similar to how you can take out a student loan and then repay the loan plus interest. A city might borrow money to build a new school, and then repay the loan plus interest. In these cases, the loan is called a bond, and the interest payments are called coupon payments. <\/p>\n\n\n\n When you buy a bond, you\u2019ll know the interest rate and maturity date. The rate determines how much you\u2019ll receive in coupon payments. And when the bond matures, you\u2019ll receive the amount of money you lent (i.e., how much you bought the bond for) back from the company or government. <\/p>\n\n\n\n All types of investments involve risk. Think of large companies that were once successful and then went bankrupt. If you bought the company\u2019s stock, you could lose money as your company\u2019s value decreases. Or, perhaps you lent the company money, but it\u2019s not able to repay the bond. <\/p>\n\n\n\n One way to limit your risk is to buy a mixture of different stocks and bonds rather than investing in a single company or loan. You can do this by buying mutual funds and exchange-traded funds (ETFs). <\/p>\n\n\n\n There are many funds available, including funds that try to replicate the value of every public company and funds that focus on a particular type of company or industry. Your overall investment could still go up or down depending on what\u2019s in the fund, but you won\u2019t be putting all your eggs in one basket. <\/p>\n\n\n\n Before you can start investing, you\u2019ll need to move your money into a type of investment account. Often, these are retirement accounts, as many people invest their money to help fund their retirement. However, if you want to save money for big purchases that you\u2019ll make before retirement age, like buying a home or a child\u2019s college fund, here are a few types of accounts you can use:<\/p>\n\n\n\n When you\u2019re deciding how to start investing money for retirement, an employer-sponsored account is often the best option\u2014if your company offers a match. This means that the company will match a portion of your contributions and send extra money to your account, immediately increasing your balance. <\/p>\n\n\n\n However, an IRA could be a better option if your employer doesn\u2019t offer a match because some have lower fees than employer-sponsored accounts. Or, if you don\u2019t have access to a tax-advantaged account from work, an IRA may be the best retirement-focused account. <\/p>\n\n\n\n There are limits to how much you can add to each tax-advantaged account every year. When you reach the limit, or if you want to invest for non-retirement goals, look for a brokerage account with low fees. There are even options that have $0 minimum account balances and let you buy and sell investments for free. <\/p>\n\n\n\n Getting money into an investment account is step one. Then you\u2019ll need to decide how to begin investing the money.<\/p>\n\n\n\n With an IRA or employer-sponsored account, you might be able to pick a few funds when you first open the account. (Don\u2019t worry, you can make changes later.) With a brokerage account, you might have to open the account, transfer your money, and then choose your investments.<\/p>\n\n\n\n Many people get stuck at this stage, as you can quickly become overwhelmed by the options. There are thousands of stocks, bonds, mutual funds, and ETFs to choose from, and it\u2019s hard to know what\u2019s best for your situation. Even if you only have a dozen options with your employer-sponsored accounts, you might not know which to choose.<\/p>\n\n\n\n Here are a few things to remember:<\/p>\n\n\n\nStocks Represent Ownership of a Company<\/strong><\/h3>\n\n\n\n
Bonds Are a Type of Loan<\/strong><\/h3>\n\n\n\n
Mutual Funds and Exchange-Traded Funds Can Help Limit Risk<\/strong><\/h3>\n\n\n\n
Open an Investment Account<\/strong><\/h2>\n\n\n\n
Choose Your Investments<\/strong><\/h2>\n\n\n\n