Tips On Investing And Why It's Important

All of us dream of retiring to a vacation home in Maui, dining out at fine restaurants and traveling the world. We want to reap the benefits of working incredibly hard for more than 40 years, but unless we start saving and investing for this early, there's a good chance it won’t happen.

Couple meeting with financial planner

So exactly how do we go about investing in our future? Read on for some great tips on investing your money and ways to get you to that vacation home!

Start now

There's no better time to start investing than right now. The younger you are when you start, the more money you're going to make. The rich don't get richer by working harder, they get richer by making their money make more money. Why is it so important to start young? If you invest while you're young, you have a better chance of reaching your goals thanks to compounding interest, which in short means you are earning interest on interest. So, the earlier you start, the more time your money has to gain interest and make money on that interest.

Pay off debt first

It doesn't make sense to start investing if you have credit cards with balances. Most credit cards have an interest rate of at least 15 percent, and in the market you're going to earn a maximum of 10-12 percent ROI (return on investment). Pay the credit cards first, save up an emergency fund, then invest. Remember, investing is long-term, so if there's a chance you're going to need this money sooner rather than later, it's best to keep it in a savings account to avoid paying penalties.

Diversify

"Don't put all your eggs in one basket" is true for investing, too. It's best to spread your money out in case one of the sectors collapses. Of course, most of us don't have thousands of dollars lying around just waiting to be invested, so start with one (consider a mutual fund or Roth IRA) and go from there. Make a habit of putting a little something in your investment every month, even if it's just $10.

So, what should I invest in?

  • Stocks and Bonds. You can purchase these individually, or in a group known as a mutual fund. The benefit to this is affordability — you don't normally have to have a large amount of money upfront in order to invest.
  • 401(k). This is a retirement plan that's offered through your employer. You decide how much you want to contribute, and it's automatically taken out of your paycheck. Another bonus is that several employers have a matching contribution. This is where they might contribute 50 cents for every dollar you put in, up to 3 percent of your salary. Free money — what's not to like?
  • Roth IRA. A Roth IRA is an individual retirement account that gives you a tax break on the money withdrawn during retirement. The money that is contributed is already money that was taxed, hence you get a break when you withdraw.

Saving and investing money is so important. Since pensions and social security may not exist when we, or our kids, retire, we have to look out for ourselves. Take the time to research investments and choose what makes the most sense for you and your family. Remember — it's never too early to start planning for your future.

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Tags: saving for retirement

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Comments

Comments on "How to invest your money"

Tina July 13, 2012 | 3:22 PM

Love tips on investing!! It's SO important to know about investments and start young. I don't plan on retiring and living off the government; I want to have my own savings and investments and be able to continue whatever lifestyle I am leading. Thanks for the tips!

Jenna July 13, 2012 | 1:04 PM

Great article and very timely given the current economic slump we’re in! This is important information, especially for people who are just starting out. A lot of younger people think that they are immortal and have forever to save for retirement. They are more interested in getting that starter home, a second car or a new washer and drier that they postpone saving for retirement. A lot of workers don’t even have the recommended 3 months worth of income saved up in case they lose their job or have unforeseen expenses. We all know that it is unwise to neglect our health, but for some reason a lot of us believe we can get away with neglecting our finances.

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