Tax season is over for most. Maybe you’re looking forward to a refund check, or have already received one – what will you do with that cash? Are you ready to think about investing that money so it can grow for you?*
Investing for wealth growth is a different mindset than putting money into savings. Both are important. Having emergency savings for sudden or unplanned expenses, and planned savings for anticipated purchases, are both smart financial strategies. However, investing is a method of building wealth over the long term so that some of the money you have worked for actually works for you.
There are many ways you can invest. Some common examples are financial instruments such as stocks, bonds, and mutual funds. You can also invest in real estate by purchasing a home or rental properties. Some individuals invest in tangible goods, like art, coins, or antiques. Starting and growing your own business, or helping to finance someone else’s business are also considerations.
How can I have enough money to invest? The key to building wealth is to earn enough to cover expenses and savings goals, with enough left over to invest. The good news is that you don’t need a lot of money to start an investment plan. Many financial institutions allow you to open a small account and start investing by buying one stock share at a time, or in small dollar increments.
Regardless of the investment, there are several questions to ask yourself before investing your money.
1. How much risk am I comfortable with? Risk is the possibility that the value of the investment can decrease, or increase less than expected. Investments carry different levels of risk, and someone who is uncomfortable with risk should pay careful attention to their choices. Unlike a bank savings account which is insured against loss, investments can decline in value.
2. How much time and research are you willing to put into your investment strategy? Rental real estate and collectibles can require a significant amount of time and skill. A beginning investor might want to consider an index mutual fund, a collection of stocks chosen based on widely used stock indices. Mutual fund managers take care of the investment selections, and the fees are fairly low.
3. How much do you want to be personally connected to your investments? A family home, art, or collectibles can bring enjoyment and fulfillment which cannot be measured in dollars. Owning rental property often means managing repairs and negotiating contracts. These are both very hands-on, as opposed to stock investments that can be managed by a financial professional.
Investing can be rewarding and challenging. It is important to research choices thoroughly and be comfortable with risks. Despite the risks, building wealth opens up opportunities for your future and the future of your family. It can expand your ability to start a business, feel financially secure, travel, give to charity, pay for education, and provide for the next generation.
Learn more about UME’s financial wellness programs at https://extension.umd.edu/programs/family-consumer-sciences/financial-wellness.
*This article is for general information and not intended to be investment advice. For guidance about creating a personalized investment plan, please consult a licensed investment advisor.