Quick Investing for Beginners

Investing is a great way to save for the future, as long as you are responsible and disciplined. It doesn’t require a huge up-front investment, and it doesn’t require a lot of time or effort. All it requires is a small tolerance for risk, a dedicated time horizon, and an up-front time investment of an hour.

Getting Started

If you are new to investing, the first thing that you need is a brokerage account. When it comes to a brokerage account, you have several options:

– Cash Account: This is the most basic account. It allows you to purchase any type of security you want with your cash on hand. This option is suitable for most investors, especially ones starting out, and ones who don’t want their money locked up until retirement.

– Margin Account: This account is similar to the cash account, except that you can borrow money to invest. This account enables some features a cash account doesn’t, such as shorting investments, and selling uncovered options.

– Traditional IRA: This is the traditional retirement account vehicle. It is similar to the cash account in that you can purchase securities with the cash you have available. However, this account places a limitation that you cannot withdraw that money inside it until you are at least 59 1/2. However, you get a tax benefit for all money invested up to the limit (which is $5,000, or $6,000 if over 50). You will have to pay taxes on any money you withdrawal once you do retire.

– Roth IRA: This is similar to the Traditional IRA, except that you do not receive a tax benefit in the year you invest, but, at retirement, all of your withdrawals are tax-free.

The choice is yours, but if you are starting out, it is recommended that you choose either a cash account or IRA.

So I Opened My Account, Now What?

Once you have opened you account, the money is just sitting there not doing anything for you. This is where a little time is involved to educate yourself, and a little discipline is needed to decide your time horizon.

There is always risk in investing. You can lose money. But you can also make money. It is neer guaranteed.

So, taking that into consideration, it is highly recommended that if you are investing for the long term, you look at index funds. Index funds come as either mutual funds or ETFs, and they track an index, such as the S&P500 or Dow Jones Industrial Average. The most common and highly recommended Mutual Funds and ETFs out there are here:

– iShares S&P500 Index (IVV)

– Schwab S&P500 Index (SWPPX)

– Vanguard 500 Index (VFINX)

– Vanguard Total Stock ETF (VTI)

– Vanguard Total Stock Market (VTSMX)

When you go to purchase these funds, you will pay a commission to buy it. This is paid each time you make a trade. It is often said that traders don’t beat the market because they pay so much in commissions, that is why an index fund is ideal for a beginning investor.

Also, you will most likely be asked if you want to reinvest your dividends or take them as cash. Most large companies in the U.S. pay dividends to their shareholders. As a small owner in each company in the fund you purchased, you get your dividends too. The fund will usually pay these out quarterly or annually. If you are investing for the long term, it is recommended that you reinvest your dividends, as it will boost you return.

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