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New to investing? Let’s start with the basics. To get a comprehensive overview on investing, check out the SoFi Guide to Investing Intelligently. This will give you a great base of knowledge and contains a lot of information to help you get started.
Here is a basic overview of some very important investing topics:
Before you start investing, it is important to understand your goals. Selecting an investment strategy depends on your goal amount, the time horizon, and your risk tolerance.
One common goal many people have is retirement planning. Goals can be broken down into short term, medium term, and long term. Here, we’ll break down these different types of goals and give you tips on how to set yours.
Example goals: Child’s college savings, buying a second home
Example goals: Retirement, financial independence
Setting your goals and determining if they are short term or long term can help you decide which type of portfolio to build.
For example, if you’re young (18-32 years old) and one of your goals is retirement, you may want to consider an aggressive portfolio—since your retirement date is 20+ years out, your portfolio can weather the market ups and downs.
As you get closer to retirement, it may make sense to move to a more conservative portfolio—the closer your goal is, the less risk you’ll likely want to take.
Here are some important investing terms to know. Below each definition, you’ll find an article that dives deeper into the term for more information.
Investments go up and down in value. Some, like stocks of small, speculative companies, go up and down a lot. Others, like high-grade corporate bonds, tend not to move much. Volatility is a measure of how much the price of an investment is likely to move in a given time period. The more volatility the asset has, the riskier it is thought to be. Generally, the more assets in a portfolio, the less the volatility of any one asset impacts the risk of the portfolio.
Investors usually focus on the risk of the value of an asset going down. There is not much we can do about things like wars and natural disasters. However, things like bad management of a company, new competition, and new government regulation can be mitigated. You can diversify your portfolio so things that hurt a particular company, industry, or country don’t wreck your whole financial plan.
Mutual funds are collections of investments that trade as a single security. Think of them as a suitcase full of securities: stocks, bonds, gold, or almost any other legal investment. They can be actively managed or passively invested. The main benefit of a mutual fund is diversification. You can buy shares of one fund and own a tiny amount of many individual stocks or bonds.
Stay up to date with the latest information about what is happening in the markets.
The market fluctuates every day. Investing in the stock market can be risky, but there is also the chance that you could grow your money. Remember, time in the market beats timing the market. In order to invest in stocks, you’ll need to open an investment account.
You can choose the stocks yourself, or have a professional put together a portfolio for you. Want to learn more? Check out these articles below.
An Initial Public Offering (IPO) is when a private company goes public and their stock is traded in the market for the first time. It is important to do your research if you want to buy IPO stocks.
Understand when the company you want to invest in is going to IPO, what the stocks are priced at, and when the stocks are available to buy.
Remember that the IPO price and the actual price you’ll pay for the stock can be different—the offering price is a fixed price reserved for a select group of investors. Ready to start investing in IPOs? Dive deeper to gain more knowledge.
The ultimate goal is to retire and not have to work anymore. But how do you get there? First, you should calculate how much money you’ll need in retirement and how much you have saved so far. Then, research the different types of retirement plans to decide which one(s) matches your goals.
A 401(k) is another type of retirement account, but this one is offered through an employer. Normally employees make pre-tax contributions, but some companies allow you to make after-tax contributions. The contribution limit for 2019 is $19,000 or $25,000 if you are over 50 years old.
Once you’ve decided on the right retirement plan for you, you’ll need to open the account and fund it. Also, you should determine how much you will be contributing on an ongoing basis.
$100/month? $100/week? Contribution amounts will differ by financial situation, so take some time to figure out what works best for you. For more information on retirement, check out the articles and tools below.
Thinking about including cryptocurrencies in your strategy? We’ve got resources for you. From bitcoin to litecoin to ethereum, there are a ton of cryptos you choose from.
Since cryptocurrencies are volatile and involve a high degree of risk, it can be a good idea to do some research on these various cryptos to understand which ones you want to buy.
Want more info on cryptocurrencies? Check out the articles below.
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