How does investing work?
Young professionals in the beginning of their careers often hear about investing, but do you actually know what it is and how it works? Investing can be perceived as a cutthroat “Wolf of Wall Street” type of game. However, the reality for most people is that investing is done through retirement accounts or brokerage accounts that you use to grow your wealth over time or save for a long-away goal, such as retirement.
What is investing?
In short, investing is the practice of contributing your money toward something in expectation of generating returns in interest, dividends and/or capital gains. This might include investing in high-yield savings accounts, money market accounts, mutual funds, exchange-traded funds, stocks, bonds and property.
One of the main benefits of investing is you do not need to have a lot of money to get started. You can start off with a small amount or a small percentage of each of your paychecks to slowly grow your wealth. Then at regular intervals, increase the amount. When investing, your money does not simply sit there. It grows, helping you save up toward your goals, stay ahead of inflation and increase your spending power.
How do I start investing?
The simplest way to invest is to open a savings account at your local bank. Build up this account to have three to six months’ worth of household expenses for emergencies and opportunities. The growth in a savings account is not usually as high as the returns you get from investing in stocks, bonds or mutual funds, but it is always accessible should you need to make a withdrawal.
If you want to start investing to potentially generate higher returns in the future, you should open a retirement account, such as an individual retirement account (IRA) or a 401(k) if your employer offers it. Through these options, you can contribute pretax dollars to your retirement savings, allowing your savings to generate wealth over time while saving you on taxes during the years you make contributions.
You can also open a brokerage account to get more directly involved with investing in stocks, bonds, property and other assets.
Talk to a ProVise CFP® professional about how to start investing
How you start investing all depends on what your goals are and how much you are willing to risk to generate higher potential returns. This is where a lot of people run into a wall. Deciding how to invest and how much to invest can be difficult to figure out. You can work closely with a financial professional to help you make investment decisions that work for you.
At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.
Are you ready to talk to a professional about how investing works? Contact ProVise today to schedule a complimentary consultation.