Cresset will be hosting a webinar titled “Investing 1.0: The What, Why & How” at 4 p.m. CT on April 30, 2020. Cresset’s education team will present an interactive session to empower teens and young adults to learn the what, why and how of investing with a focus on stocks and bonds. Register here.
If you are new to investing, it may seem daunting and confusing. Investing terminology can be foreign, there is often conflicting advice being offered, and there are more books, websites, and articles on investing than you could ever read in a lifetime. Where do you begin? Cresset’s Launch Webinar Series breaks down investing by starting with the basics. The following are the key concepts that anyone getting started with investing should know:
Why invest at all? Here are two key reasons to begin investing today:
- Beat inflation. Inflation is a rise in prices that impacts what things cost (i.e. your purchasing power). It is why your parents and grandparents tell stories of a time when gas, movies and a soda cost much less than they do today.
- Take advantage of compound dividends and interest. Start investing early to benefit from compounding, which is essentially earning money on your money. The dividends and interest you earn is added to your initial value and the combined value can grow over time. For example, if you invest $300 monthly starting when you are 25 years old, and it earns on average 8 percent over 40 years, you would have more than $1 million when you are ready to retire!
There are numerous investment options to consider, which can quickly get overwhelming. To keep things simple, there are two types of investments everyone should be familiar with – bonds and stocks.
A bond is essentially a loan you make to a corporation or the government. They agree to pay you interest over a period of time, as well as to pay back the full loan at the end of that time.
Think of buying a stock as buying a piece of ownership in a company. The main way you make money buying shares of stock in a company is through the value of the share price increasing (typically meaning the company is having success) and selling your shares for more than you bought them for.
There is uncertainty with both bonds and stocks, but stocks are generally riskier. The higher the perceived risk, generally, the higher the expected reward. Why would you invest in something risky without potentially more to gain, right?
The key with investing is not to be intimidated and to start early by seeking the advice of a trusted financial professional. Remember, the sooner you start investing, the more the value of your investment can compound over time and beat inflation. In our next webinar, we will explore more about risk, return and something called “diversification.”