Investing Basics

Ready to start investing but not sure where to start? Wings Financial Advisors is here to help. Understanding the basics of investing and how to effectively apply them can help you build a solid portfolio and work towards your financial goals.
 

Foundations

Investing is the process of putting money into assets with the goal of earning a return over time. This contrasts with saving, which prioritizes keeping existing funds safe, secure, and available to use on demand. Investing requires taking on some risk and sacrificing liquidity in exchange for greater growth potential. Common means of investing include stocks, mutual funds, bonds, and real estate. 
 

Start Small

Fortunately, a lot of money or big risks aren’t necessary to start investing. Setting aside a small amount from each paycheck or starting with a small sum that’s not already set aside for other financial obligations is all it takes. The best way to start is to set a goal, whether that’s saving for retirement, a down payment on a house, a new car, or higher education for you or a family member, or just to grow your wealth more generally.
 

Being Ready to Invest

Having high interest debt and investing can be counterproductive. In order to be well-prepared to invest, consider paying off credit card debt and unsecured loans first. These types of debt typically have higher interest rates than any potential gains you could see from an investment portfolio. Taking care of this beforehand will set you up for success.

Start by Saving

Emergencies and large expenses can surprise you. Medical bills, vehicle repairs, job loss, and home expenses are all things that can deplete your savings quickly. Having savings dedicated to helping you weather challenges like these prevent you from needing to take out high interest loans.  Every investor should have enough funds available in a savings account that they can cover at least 6 months of living expenses.
 

Benefits of Investing

Investing is a power financial tool. Here are some ways that investing can benefit you:

1. Build Wealth—investing allows your money to grow and compound over time.
2. Work Towards Financial Goals—Investing can help you reach your financial goals faster than saving alone.
3. Generate Passive Income—some investments can provide a stream of passive income, which help supplement your earnings.
4. Tackle Inflation—inflation erodes your purchasing power over time. Investing in assets that go up in value, such as stocks or real estate, can help you beat inflation.

 

Terminology

The language of investing is a unique one. Here are some of the basics to get you started:

• Stocks—ownership in a company. When you buy a stock, you become a shareholder in that organization and have the potential to earn returns through price appreciation and dividends. Individual stocks are generally considered high-risk, but they offer a high potential for returns.
• Bonds—loans you make to a corporation or government entity in exchange for interest payments and the return of principal once it matures. Bonds are typically lower-risk than stocks, but also offer a lower potential for returns.
• Mutual and Exchange-Traded Funds—diversified portfolios of stocks, bonds, or other securities. These offer diversification and professional management, making them a great option for new investors, despite fees.
• Retirement Accounts—includes 401(k)s and IRAs. These offer tax-advantaged investing that can help you grow your wealth more efficiently. These accounts are especially designed to help you save for retirement and typically offer a range of investment options.

Growing Your Wealth

The sooner you start investing, the more you can take advantage of compound interest. Returns on your investments generate additional returns, helping grow your funds exponentially over time.

Start Today! Schedule a meeting with a Wings Financial Advisor to learn more about how investing can help you work towards your financial goals.


 

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