"I know nothing about investing.
" "Why should I invest?" "Stocks and bonds? I don't get it.
" Just the thought of investing your money can be daunting, especially if you don't understand how to go about it.
Why invest? Most of us have decent paying jobs that take care of the bills and put a little money in our pockets, but what about retirement? College for the kids? Social Security is well intentioned, but it's hard to live off it in the Golden Years.
College expenses rise year after year.
By investing you create wealth to help you put the kids through school and to help see you through when you retire.
If you can, invest early.
By investing early in life you can earn more than investing later.
The earlier you start, the better.
Another thing to keep in mind before you start investing is to pay off high interest debt.
Any dollar you can put toward investing as opposed to credit debt will be better for you.
Also, pay off your monthly bills first - your mortgage, gas, cable, electric, and food.
What you have left, you can invest.
Try to put away as much as possible.
It's recommended 10% of your total annual income, but whatever you can put away is a better than nothing.
There are several options to investing, short-term, long-term, and retirement options.
Each have advantages and disadvantages.
You have to pick the plan that would work best for you.
When you look at short-term investing, the idea behind it is to earn the money you're going to need in the short term, in three to five years.
Short term investing options include savings accounts, money market funds, and Certificate of Deposit (CD).
Savings accounts earn small amounts of interest.
CD's earn more than a savings account.
The interest is paid regularly and when it matures, you get the money you originally deposited plus interest.
Money market funds are mutual funds that invest in small-term bonds.
They pay better interest than a savings account, but generally less than a CD.
The goal is to keep the shares around $1.
00 at all times.
The idea behind long-term investing is to have money for major life goals such retirement or money for college for your kids.
By investing in the long-term, you compound your gains year after year.
Some options for investing long-term include bonds, stocks, and mutual funds.
Bonds are similar to CDs except the government or a corporation issues them.
The amount of income a bond can generate over the course of the year is fixed when the bond is sold.
Buying stock is a way for individuals to own a part of a business.
A share of stock is proportional to a share of ownership.
As the value of the company changes, so does the stock.
A mutual fund allows investors to pool their money to buy stocks, bonds, or anything the manager decides is worthwhile.
With mutual funds, a manager decides how to manage the money.
There's also specific long-term plans for retirements.
The benefit is that most employers allow you to deposit money into these accounts before taxes.
An IRA, Roth IRA, and 401k are some of the most popular plans.
IRAs are special accounts that let the holder invest money how they like.
Generally, you don't pay taxes until you withdraw funds.
With a Roth IRA, it offers a total exemption from federal taxes when you cash out for retirement or buy a first home.
It can also be used for education or medical expenses with no penalties.
Roth IRAs have tighter income restrictions than regular IRAs.
With a 401k plan, your employer matches the amount you put into it, basically giving you money for your future.
There are numerous invest options and tools out there to suit your needs.
Once you determine what will work for you, then you can go about investing for your rainy day.