To Invest or Not To Invest?
That’s the question that I’ve been asking myself for the past couple of months since I finally peeked out of the debt hole that I have been in for the past year. I am finally carrying little to no debt thanks to Project Money, and I’m smelling the fresh financial air for the first time in my life. And I’m really liking how it feels. So, I think it may be time to take the next step and invest some of the money I’ve been able to save. And not just invest in conservative bonds like I mentioned in one of my first Project Money blogs. I’m talking like the grown up kind of investing. The kind that when I start using investment speak in my conversations, people think I’m really smart. But where do I start?
In doing some research on investing, I’ve come up with more questions than answers. Like what exactly is a mutual fund? What are index funds? What’s the risk with investing in one over another? How much is a safe amount to invest? Should I use an investment company or go out on my own? What the heck is a bitcoin and can I use them to buy groceries? All these questions are making my head spin!
So, to make investing in research on investing more bearable, I used my star rewards at Starbucks, sat down with a (free) tall decaf non-fat no whip no foam raspberry mocha and sunk my teeth into some basic investing articles online using the free wi-fi. Here’s some of what I learned:
Like your day to day or month to month budget, you need to have a goal for investing. Obviously, the basic goal of investing is making money….duh! But more specifically, the primary goal of investing should be to identify opportunities where the potential for making money is high, while balancing risk. Seems easy enough (?!?).
Now that we’ve identified a basic goal of investing, next you need to identify opportunities. Where are you going to invest? To help me do that, I found some great podcasts, and I also found some basic investing articles online. I learned that a mutual fund is an arrangement among investors to pool their money and hire a professional money manager (company) to buy and sell securities on their behalf. It’s like you and your friends pooling your money to buy something that you couldn’t afford to buy individually. More simply put, you purchase a slice of the pie and hope the baker can come through for you with a really big pie so the slice you eat is bigger than the slice you bought. Capisce?
An index fund is a mutual fund with preset rules that are adhered to regardless of market conditions. So, you still pool your money with your friends to buy that pie that you couldn’t afford on your own, but instead of letting the baker bake the biggest and best pie that she can bake at the time (as in mutual funds), the index fund baker must stick to the recipe of the day.
So here’s this week’s financial fun fact: If you want to invest some of your hard earned money, think about how much money you can comfortably invest without breaking your budget, and then decide where you want to invest. There are pros and cons to both mutual funds and index funds, depending on what level of risk you are comfortable with. Are you willing to let the market run its course or will you make a knee jerk reaction if the pie you invested in starts to look a little burned around the edges? Once you have that figured out, find an investment company or brokerage firm and open an account. Unless you are confident that you have enough investing smarticles to invest on your own and then you can start selecting your securities. Good luck!
I will be starting off the new year by investing some of the money I’ve saved so it can start to build up over time. And hopefully when the time comes to eat my slice of the pie, my piece will be bigger than it was when I put it in the oven.