You
are never too young to start saving and investing. People that start investing
when they are young are more likely to develop habits that will last a
lifetime. The earlier you start investing, the more money you’ll accumulate
over time. To find additional dollars to invest, you might start your own
business. Everyone can find money to invest if they analyze and change their
spending habits.
Use a savings
account or buy a certificate of deposit. A savings account gives you access to your
money at any time with very low risk. This option, however, offers a low
interest rate on your investment. A certificate of deposit (CD) offers a
slightly better return, but with less flexibility. You must leave the money
with the bank for a period of time ranging from months to years.
- These investments have several benefits. They are easy to set up, and they're typically insured by a government agency, meaning they're very safe.
- The downside is that these investments pay very little interest. Without much interest, you don’t generate as much compounded interest. As a result, CDs and savings accounts are suitable only for holding small amounts of money for very short periods of time. They may improve as savings vehicles in times of high interest rates.
- Smaller banks and credit unions will sometimes offer higher interest rates in order to attract customers away from larger institutions.
Invest
in government or municipal bonds. When you buy bonds, you are loaning money to
a government or municipality. You can also invest in bonds issued by
corporations.
- Bonds pay a fixed rate of interest on your investment each year. You can reinvest your interest in more bonds and allow compounding work for you.
- Payment of your original investment (principal) and your interest is based on the credit rating of the issuer. Government bonds and municipal bonds are often guaranteed by tax dollars that the issuer collects, so risk is low.
- A corporate bond’s payments are based on the creditworthiness of the corporation. A company that generates consistent earnings will have a better credit rating.
- You can buy bonds through your bank, or using a financial advisor.
- There is a downside to bonds investing. When interest rates are low, returns can be small. Even in times of higher rates, bonds usually offer lower returns than stocks. Bonds, however, are normally considered less risky than stocks.
- The average return on bonds since 1928 (including compounding) is 6.7% per year, compared to 10% for stocks.
Buy
stocks. When you buy
stocks, you are a company owner. Stock investors are also referred to as equity
investors. Investors buy stocks to earn dividends and to benefit from an
increase in the stock’s price.
- Stocks offer better returns on average than most other types of investments. While stocks offer higher returns, they also involve more risk. The longer you are able to invest in stocks, the more time you have to recover from a stock price decrease.
- If the company generates earnings, they may elect to pay a share of those earnings as a dividend to stockholders.
- You can purchase stocks by opening a brokerage account. You’ll be asked to complete a new account form. Once your account is open, you can deposit funds and purchase stock. Consider using a financial advisor to invest in stocks.
Invest
in a mutual fund.
A mutual fund is a pool of money contributed by many investors. The funds are
invested in securities, such as bonds or stocks. The mutual fund portfolio can
generate bond interest or stock dividend income. Fund investors may also
benefit if a security is sold for a gain.
- Mutual fund accounts are easy to open and maintain. Investors pay fees to the fund for money management. You can add to your investment regularly and reinvest your earnings, if you choose.
- Funds allow you to invest in a variety of stocks and bonds. This provides the safety of diversity, protecting you against losing money when just a few securities decline in value.
- Most mutual funds allow you to invest with a small initial amount and to add small, periodic investments. If you don't have much to invest, this will be important. Some funds allow you to begin with as little as $1,000 and add in increments of as little as $50 or $100.
