The simplest way to reach financial freedom is to start allocating a portion of your personal finances to investing — early and often. Nothing grows your wealth as consistently and powerfully as investing, whether in your own business or someone else’s.
The S&P 500 has averaged an inflation-adjusted 8.3% annually over the last 30 years. Had you invested $100 of your savings in the S&P 500 every month since then, it would be worth just over $600,000 today. Rather than letting all of your savings sit in a bank, you should invest a portion of them so it grows.
What is Investing?
Investing encompasses any action you take with your personal finances with the intention of making a positive return on your original investment. Investing includes allocating savings toward a startup or business you or someone else founded, bonds, and most commonly the stock market among other things.
The primary purpose of investing is to ensure your money is not losing value to inflation and, when possible, actually beats out inflation. As with all good things, most investments come with the catch that they may lose value at any time. The best way to grow your money, with zero risk, is by investing in U.S. Treasury Bills — the rate often referred to as the “risk-free rate of return.”
Who Should Invest?
Everyone should have a portion of their income allocated toward consistent investments in the stock market. The stock market will net you the same percentage return as everyone else, regardless of your socioeconomic status, provided you are using a similar investment strategy.
If you’re not making a lot of money, investing a small portion of your income now will benefit you as you get older and make more money. Even if you are in your 30s or 40s, consistently investing a portion of your income in the general market will set you up nicely for retirement, especially if your employer has a 401(k) matching program.
Invest in Something You’re Comfortable With
Everybody is comfortable risking their money to different extents. Thankfully there are different ways to invest your money to fit your risk tolerance.
If you are not willing to take any chances with losing your money, you should invest in 10-year U.S. Treasury Bills. They provide a guaranteed annual interest rate return (coupon payment) that is backed by the U.S. government, plus your initial purchase price (the par or face value).
If you are a low-risk investor, you can invest in high-dividend-yield stocks (see The Current Best Dividend Stocks), which may fluctuate in value but provide a quarterly dividend payment, simply for owning the stock.
If you are willing to take on a medium level of risk, consider investing in a large index, ETF (see The Best ETFs Right Now), or defensive stocks (see Is Now the Time to Invest in Defensive Stocks?). Each of these tend to carry low levels of volatility and often to increase modestly in value as time goes by.
Be sure to not overexpose your portfolio to a single stock, industry, sector or geographical region. Doing so will make your portfolio more responsive to news affecting each respective group.
If you are sitting on a comfortable amount of money and want to take on higher risk, consider investing in growth stocks. These companies tend to be publicly traded and unprofitable, aiming to corner a growing industry. These companies often have a lot of competitors aiming to grab as much market share as possible.
If you’re feeling extremely bullish on a specific industry or group of stocks, you can allocate a higher percentage of your portfolio to that industry, taking on as much exposure as you want. This will likely lead to higher daily volatility in your portfolio as industry news will affect your portfolio to a greater extent.
If you are a savvy investor, consider trading options. Options trading (see How to Trade Options for beginners) allow you to expand your potential gains and losses and should only be traded when you think the contract is being traded at a bargain, or if you feel strongly about what direction a stock is going to move. After you gain experience with options, you can eventually learn how to profit even if you think a stock will not fluctuate much in value (see the 4 Best Options Trading Strategies).
If you have a lot of money at your disposal, consider investing in a startup of your own or becoming an angel investor. These are some of the only ways to get into a “unicorn” investment at the ground level. Once a company is publicly traded, it has likely already gone through several rounds of capital raising in which private investors with substantial capital have already gotten in at the best price.
When Should You Start Investing?
In short – NOW.
The reason to start investing early and often is due to compound interest. Compound interest allows not only your initial investment to grow over time, but also any gains from that original investment. For example, when you invest $100 and gain 8% annually, after that 1st year your investment grows in value to $108. If you return another 8% the next year, your investment grows by $8.64 to $116.64, instead of by $8 as in the 1st year. Compound interest is so powerful, in fact, that Albert Einstein referred to it as the “8th wonder of the world.”
Popular Types of Investment Accounts
Investing is one of the best ways to grow your money over time. Investing allows you to take advantage of compound interest, which means that the more you invest and the longer you wait, the more money you will make. There are many different types of investment accounts available to investors, so it's important to understand what each account can offer before deciding which one is right for you.
Money Market Account
A money market account is a type of savings account that allows investors to earn higher interest rates on their deposits than they would with a traditional savings account. Money market accounts are a great option for individuals looking to increase their savings without taking on too much risk. There are many benefits to investing in a money market account, including:
High Yield Savings Account
Investing in a high yield savings account is a great way to start investing your money. By depositing funds into a savings account that pays higher interest than the standard rate, you will earn more money over time. This can add up quickly and help you meet your financial goals faster. High yield savings accounts also offer the security of federally insured deposits, so you don't have to worry about losing your money. These types of savings accounts are a great place to build an emergency fund and see higher returns than a traditional bank account.
Retirement accounts are some of the most important investments you can make. They provide a secure and reliable way to save for your retirement years, allowing you to enjoy financial security during this time of life. Retirement accounts also come with tax advantages that can help reduce your taxable income while you save for retirement.
Investing via a brokerage account is one of the smartest decisions you can make for your financial future. With a brokerage account, you have access to a range of investment options, allowing you to diversify your portfolio and maximize returns. Brokerage accounts also give you greater control over your investments, as well as the ability to trade on margin and use sophisticated strategies such as options trading.
Best Online Brokers for Investing
Many apps are available to help you get started with investing. Check out the best brokerage accounts below.
How Do You Benefit From Investing?
- Grow retirement savings faster
- Earn passive income
- Earn better returns as you get more experience with the markets
- Maximize your gains further with employer matching programs
- Hold for 1 year or longer for tax benefits (see Capital Gains Tax)
Your money will hold its value against inflation with careful planning
What Types of Investments are Available?
Consider these most common investments for asset allocation:
- Private companies
- Stock Market
- Exchange-traded funds (ETF)
- Commercial real estate
- Collector's items
Set Your Investment Goals Before Getting Started
Investing comes with the risk that you may lose money, Investment risk should be top of mind. For people who are not able to keep a pulse on the market throughout the day, consider hiring a broker to manage your personal finances.
If you want help staying on top of the markets, visit Benzinga.com.
Benzinga’s Best Online Investment Firms
Check out this list below for our recommended investment firms.
Don’t Put Off Until Tomorrow What You Can Do Today
Each and every day you wait to begin investing is time spent letting your money sit and lose value. Let your money work for you and generate wealth over time.
Remember to not be discouraged if your portfolio is in the red for the first few weeks. After all, investing is not a get-rich-quick scheme. Your future self will thank you for staying disciplined with regular contributions to your portfolio.
Get started today with one of the brokerage firms listed in the section above.
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Frequently Asked Questions
Can I invest at 14?
Yes, and it is a smart idea. While you cannot open your own account, you can still open a custodial account with your parent or guardian’s approval. By the time you are 18, you will have had 4 years of investment experience and should be more than prepared to manage an account on your own.
What should a beginner invest in?
Invest in the general market or mature companies like the FAANG stocks (see What are FAANG Stocks).