You’ve been diligently tucking away 10 percent of every paycheck into a bank savings account.
After three years, you have saved $10,000. But you’ve earned next to nothing, thanks to ultra-low interest rates. Then you look at the stock market, and ask yourself, “Why didn’t I invest in Apple shares?”. If you had, your money could have grown by as much as 150 percent. But you’re also asking yourself whether you want to risk the market.
It is suggested that you answer that question by asking yourself a few more: “What are my financial goals? Can I handle the uncertainty? What is my time horizon? How much time do I want to spend tending my investments?”
How to Invest and in What
Many say that investing in stocks and shares is easy to get started. You can buy an array of securities through a broker, a financial planner, or even yourself by using an online trading platform. Here are some of the major types of securities to consider:
- Stocks offer you ownership in a company as a shareholder. Their value rises or falls over time. Your challenge with stocks is to buy low and sell high.
- Mutual funds pool money from investors to buy stocks, bonds, money markets, and other instruments. They are portfolios of securities operated by professional money managers.
- Exchange-Traded Funds are mutual fund-like instruments that can be traded like a stock. They combine fund diversification with stock liquidity.
- Bonds are loans you make to a company or a government. The risk is low, but so are the returns – especially in today’s interest environment.
Before committing your hard-earned money to any of these investments, however, be sure you have done your homework.
Staying the Course vs. Buying and Selling
If you stuck it out with that low-yielding savings account, buy-and-hold investing might be for you. Barclays points out that market volatility makes it difficult to know when to buy and when to sell. Over time your money will grow. In the five years ending this past May, for example, the S&P 500 index increased by 179 percent. If you cashed out two years ago, you would have missed the ride to the top.
If you’re the more aggressive do-it-yourselfer type, consider an online account that lets you do your trading when you want. There are plenty of trading platforms available, many of which offer online tools, research reports, and low fees.
Whatever your style, you will want to track your investments and monitor performance. You may need to fine-tune your investment allocations occasionally or move your money to the safer ground quickly in an emergency, such as the current COVID-19 pandemic.
The Closing Bell
Ultra-low interest rates have rendered savings accounts unprofitable. Increasingly, consumers are turning to securities as an alternative way to save for the future. There are many types of investment vehicles, such as stocks, bonds, mutual funds, and ETFs.
There also are many different ways to invest – an online trading platform or a broker, for example. Be mindful not only of investment returns but also of risk and your risk tolerance. Most of all, do your homework before you invest and keep tabs on your securities once you do.