Investing money provides you with a way to develop financial wealth, such as by using compounded interest to gain 4 percent through a certificate of deposit or a 10 percent return on stocks. Before you make significant investments, evaluate any debts. For example, if you owe $2,000 on a credit card with an interest rate of 20 percent, pay off your credit card so that any gains from investments are not wiped out by credit card interest.
Beginners should establish investment goals. For instance, one investor may want to earn a certain amount in 10 years, 15 years and 20 years. Another investor might want to earn enough to afford her newborn's education. Investment considerations must include salary increases or decreases, Social Security and taxes. Make sure that you distinguish savings from investments. Savings refer to relatively liquid income, such as money in a bank savings account or money market fund. If you have an emergency, then you can use money allocated as savings. Investments refer to income that you will need in the long term that is typically composed of stocks and bonds.
Over a long period of time, stocks provide investors with opportunities to earn high investment returns. When purchasing stocks, begin by researching companies that you like in order to determine if the companies are publicly traded or privately held. For example, if you are a fan of JanSport backpacks, then you are out of luck as it is privately held and you cannot purchase stocks. However, if you love Macs and have an iPhone, then research Apple's stock (AAPL). Try to understand how it makes money. Is the business 75 percent from iPod sales? Companies that are publicly traded must disclose quarterly and annual reports. Get in the habit of reading investor reports.
Remind yourself that the market is cyclical and prices continuously fluctuate.For additional support, consider taking a financial literacy class at a local community college. You also could purchase a book like, "The Everything Investing Book," "The Smartest Investment Book You'll Ever Read" or "The Little Book of Common Sense Investing."
Once you feel comfortable, open an account with an online brokerage and dabble in minor investing. Purchase a few stocks by spending less than $250, but do not evaluate the stocks daily. Instead, return to the stocks after a month and assess the return.
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