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Investing 101: Investing for Beginners

  • Posted on November 01, 2023

Key Takeaways:

  • When you invest in real estate or financial markets, the value may go up over time, earning you a profit, or it may go down, causing a loss on your original investment. 
  • Investing is different from saving. Saving money in a savings account at a reputable financial institution comes with a guarantee you’ll make money and not lose money. Investing comes with no guarantees. 
  • Important concepts in investment for beginners are risk tolerance and personal goals. An expert financial advisor can help you better understand your options and weigh risks, rewards, and what’s right for you.

You don’t have to be a millionaire or live in a mansion to have the power to invest. People of all incomes invest in real estate and retirement funds like 401ks. They buy stocks and bonds. They follow the market to see how their investments are performing. 

1. Financial Investment Defined

The first lesson in Investment 101 is the definition of investment. Many of us say “investment” to describe money we spend on things we think are worthwhile; things we believe will pay off in the end. To build a successful career, for example, you may invest in education, a professional wardrobe, and reliable transportation.  

Making a financial investment in real estate or buying a company’s stock is similar, but there’s an exact dollar amount attached to the value of what you buy, when you buy it. That value may go up over time, earning you a profit, or it may go down, causing a loss on your original investment. 


2. Savings vs. Investments

When you save money in a savings account at a reputable financial institution, you’re guaranteed that your savings will increase in value by a certain percentage over time and that you won’t lose money on your original investment. 

Savings accounts include:

When you invest money in real estate or financial markets, there is no guarantee that you’ll make money, and you could lose it. 

Types of market investments include:

  • Stocks, shares in a company
  • Bonds, loans you make to a company or government
  • Mutual funds, curated mixes of stocks, bonds, or both  

Savings and investments often come together in retirement accounts. These accounts typically allow you to choose the types of savings or investments you want to make within them, from Money Markets to stocks, bonds, and mutual funds. 

Types of retirement accounts include:

  • 401ks offered by employees with tax-deductible contributions and potential employer matching
  • Individual Retirement Accounts (IRAs) for individuals regardless of employment

Different types of IRAs have different features. A traditional IRA, for example, offers tax-deductible contributions. A Roth IRA doesn’t offer tax-deductible contributions. Instead, it offers tax-deductible withdrawals at retirement age. A Simplified Employee Pension Plan (SEP IRA) is for self-employed people, offering tax-deductible contributions. 


3. Risk Tolerance

One important concept in investment for beginners is risk tolerance. How much risk are you comfortable taking? How much can you afford to lose? Take a look at the three general levels of risk tolerance and consider what feels right to you.

  • Conservative: Your priority is not losing money, even if that means making less on an investment.
  • Aggressive: You’re OK with losing some money if that means the potential to make more on an investment.
  • Moderate: Somewhere in between.


4. Personal Goals

Another important concept in investment for beginners is personal goals. Why do you want to invest? What’s the money for? Goals can be shorter term or longer term. Common goals include:

  • Buying a home
  • Paying for college
  • Funding retirement

Think about your goals and your ideal timeline for reaching them. How might different savings and investment options help you get there? What level of risk is acceptable?

When you’re ready, speak with an expert financial advisor for a deeper dive into your individual situation. 

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