Know Why, When, and How to Invest
With a potential recession, record inflation, and rising interest rates, it may seem like an odd time to talk about investing. But it’s precisely for those reasons that you should look at your finances and do what you can to invest now!
I’ll cover a few basic questions like “Why invest?”, “When should I start?” and “How do I begin?” Then you’ll be ready to take action now for financial security against uncertain times!
- Why is it important to invest?
- When should I invest?
- How do I begin investing?
- Want more financial tips?
Why is it important to invest?
Investing seems like a privilege of the wealthy and highly educated social classes– but that could not be further from the truth! It is true, however, that the wealthy and highly educated tend to take greater advantage of investment opportunities that create long-term wealth.
But why is investing so important? Because it creates new income without working additional hours and can grow faster than inflation rates.
Create passive income
Investing creates passive income, or additional money you don’t have to work hour by hour. Who doesn’t want to work less but make money? Investments is a great way to gain financial freedom. Once you set up your investments, you only need to check on them once in a while. You can set it up to automatically invest to certain funds or stocks automatically. The best part is that they’ll continue to grow without you looking!
Protect against inflation
Another reason to invest is to protect yourself from inflation. Inflation is the cost or prices of goods over time. This means that the dollar today will not hold the same value in the future. Therefore, just putting money into a savings account can actually lose you money as it has less buying power in the future.
In contrast, when you invest your money you get a return. Your investments go up and down with market trends, but the stock market’s value is not closely tied to inflation. So while your pension or savings will decrease in purchasing power with increased inflation, your investments can grow at higher rates than inflation.
When should I invest?
A top concern for new investors is understanding when to invest their money. There are a few guiding principles to make the most of each dollar, but I’ll address two points today.
Investing sooner is better than investing often
The first principle of investment is that starting now with little money is better than investing later with more money. That’s because of the power of compound interest– your earned interest will grow with the money you invested. It’s free money creating additional free money!
However, many beginner investors get stuck overthinking their investment plan and have the fear of losing money. For example, when markets are down, they fear losing money. On the other hand, when stocks are up, they may feel like it is no point when the price is too high to make money.
Regardless, investing is meant to be long term. Historically, the stock market makes you money and you should invest on cost average versus a trying to time the market.
Use recessions to buy “cheaper” stock.
The stock market often struggles during recessions, creating a relatively short opportunity for people to buy stock at a lower price. So it’s a great time to take advantage of buying stock that will likely rebound within just a few years!
How do I begin investing?
Finally, many beginners need help figuring out how to start their investment portfolio. And with good reason! Investing can take a lot of hours and education to understand the nuances of the market.
Luckily, investing has never been easier to start! Using free tips online and accessible budgeting and investing apps, you can easily start today. There are many facebook groups, youtube channels, blogs, podcasts, and other free resources out there. However, be wary of the stock scammers out there!
Understand your “cost of living.”
Before investing, it’s crucial to understand the state of your finances. Ensure that you cover ongoing budget and debt obligations before investing. For some common types of budgets, check out “3 Easy Budgets.”
Create a diversified strategy
Safe investing means avoiding putting all your eggs in one basket– don’t put all your money in a single stock or asset. Instead, spread your investment over multiple stocks (a mutual fund is an easy way to manage your stocks!).
Beware of following investment trends. For example, many people have lost money in the cryptocurrency market. Others have made high-profit margins, but crypto needs more time before beginners invest in it.
Want more financial tips?
As a first-generation Mexican immigrant, I know the Latinx community’s unique financial challenges. As an undocumented immigrant at eight years old, I’ve since gained citizenship, served in the US Navy, and built a real estate portfolio earning over $50,000 a year in passive income.
Check out 12 Personal Finance Books Written By Women, blog post for a reading list.