Understanding the Basics of Investing
Investing is the process of putting money into financial accounts, shares or property in hopes of gaining a profit. This is possible because of compound returns. A compound return represents the effect that a series of gains or losses has on an original balance over a period of time. Because of compounding, a small amount could grow substantially, given enough time and a high enough rate.
The first thing to understand when investing is that it involves risk. If you are investing at a young age, you have an advantage in the risk vs reward mindset. When you are younger, you are still investing for the long-term. These investments involve less risk because they have time to stabilize over years. If you make a bad investment as a young saver, you have time to evaluate other options for investments that could turn into a good opportunities.
When you first start investing, you may have questions about your different options and what the possible outcomes would be. Once you’re more experienced with investing, there are a few more routes to explore, such as purchasing individual stocks, buying real estate, and many more.
However when you start to initially invest you will want to understand two common investment accounts; individual retirement accounts (IRAs) and mutual funds. While these forms of investment may be ideal for beginners, each person must decide on the right investment for them.
Individual Retirement Accounts are one of the ways to save for retirement that offer potential tax advantages. Your money is put away long-term and, in some cases, can grow tax-free. With traditional
IRAs your contributions may qualify for a deduction on your tax return. When investing in a Roth IRA, your after-tax contributions can grow and be withdrawn at retirement tax-free.
Individual Retirement Accounts are available at any Consumers Credit Union location. Our team can explain the difference between traditional and Roth IRA accounts and can assist you in selecting which account best meets your investment goals.
A mutual fund is a professionally managed investment program that is funded by shareholders. These types of funds make it possible to invest into a variety of stocks and bonds without having to pick them out individually.
CFG financial advisors are able to meet with you one-on-one to discuss your finances and help you discover which investment options that will start you off on your investing path. Reach out to Consumers Financial Group to schedule your complementary meeting to speak with an advisor who you can get started investing.