Investing. What Is It?
The definition of the word invest is:
to commit (money) in order to earn a financial return - Merriam-Webster
Per Merriam-Webster, an investment is:
the outlay of money usually for income or profit : capital outlay
In short, we are trying to make money. We are typically doing this in the "investing world" by putting up some money up front, with the hopes of future financial returns. Those future returns on investment (ROI) could come in the form of:
How Do I Start Investing?
Likely you've heard the old saying "it takes money to make money". It should come as no surprise that this obvious message gives us a clear starting point... saving the money.
Whether you choose to begin with automated savings to a retirement plan (recommended) or will elect to manually make deposits into your savings and investing account, this is the foundation for investing.
My favorite places to start investing are any of the following:
My favorite things to invest in:
You may certainly choose other investments such as real estate, commodities, collectibles, or whatever else your heart desires. My personal belief is investing in the stock market in one of the tax-advantaged accounts listed above is the easiest to start with the lowest barrier to entry.
The reason I like investing in the "retirement" plans listed above as a good starting point for beginners is that you take advantaged of specialized tax treatment in these accounts.
For traditional 401(k)/403(b) and traditional IRA plans, you get a "tax break" now by lowering your taxable income, but will have to pay tax later on withdrawals in retirement (typically age 59 1/2 or older). This "tax break" occurs by notifying the IRS that you set money aside to these tax-advantaged accounts, thereby lowering the amount the IRS can tax you on. With traditional accounts, there is also required minimum distributions (RMD's) starting at age 70 meaning you have to take out at least some money, even if you do not wan to.
For Roth 401(k)/403(b) plans and Roth IRA's, you get to withdrawal the money in retirement tax-free (typically starting at age 59 1/2). The downside is no "tax break" now like the traditional accounts offer outlined above.
Be aware, there are limits to the amount of annual contributions you can make to these types of accounts. Do a quick search of the IRS.gov page for current year allowable contributions for all types of accounts.
The effort of this article is to simplify investing. By no means is this investment advice nor is it designed to be a comprehensive outline of the entire investing world.
The problem, however, is that most people get scared off by the "complexities" of investing when really you can get started with a simplified plan and fill in the knowledge gaps over time.
Think of it this way: What is the least amount of energy required get myself started in the investing world? My opinion: investing in the stock market.
Let us know your thoughts in the comments below. Have a favorite investing company? Share it with the community to engage in finding the lowest cost solutions with the highest quality user experience.
I started this blog because friends and family often asked me similar questions regarding personal finance. I was surprised just how much people were interested in improving their financial situation, yet had no idea where to start. It made perfect sense to start a blog and share all the information that I have learned along the way with others. You will find many resources and links referred throughout the blog. I have found all of this information useful and continue to grow my knowledge and understanding in the personal finance space. Admittedly, even I struggled heavily in the beginning with understanding how to improve my financial situation. The power of reading and note taking got me where I am today and will continue to provide a return on investment for years to come. I look forward to sharing with you along the way.