Ok today I'm going to talk to you about finances because this is something that most of us never think about when we are young. Now I know that I'm going to sound like every one else when I say you are never too young to start saving. Of course if your too young you have to have your parents on your account so if you don't trust your parents spend every dime you get your hands on until you move out. Their are three major ways to invest and I'm going to tell you about all three. The first way is do it yourself which is the cheapest. It's pretty simple and strait forward you open up a account at one of the cheap on-line brokers. I use Scotttrade but their are several out there to choose from.
Now investing isn't gambling so don't get all caught up in the day to day prices just pick what you believe in and buy a piece of it. That's called Stock trading because you investing a set amount of money into a single company. Stock Trading goes up faster and comes down faster then other types of investments. The more companies you add to your portfolio the less this happens which bring us to mutual funds. Mutual Funds are put together by brokerage houses but you can buy these funds just like you do stock except most funds you can only buy or sell in the morning or at the end of the day.
Mutual funds are put together in several different ways some are only made up with small companies, some with mid size and some with large. Another way is by Energy, Transport, or companies that make money in construction. You get the idea.
There are some things you need to know about Mutual Funds is the Brokerage Houses make their money by charging you a service free for managing the fund. But all of the On-line houses have screeners for all investments so you can figure out what works for you. Mutual funds don't move up and down as fast as stocks and generally follow the market no matter who puts them together or how they are made up but it gives you the ability to diversify your investment with just a little bit of money. So that is the advantage.
Now when I was younger I invested in stocks through E-trade. I was invested in a single stock for the long term. so I invested about $1000 dollars. 700 in stock and 300 in a money market account which is basically a savings account. Now because it was long term I only looked at it maybe once a month just to see how much money I was loosing. Investing in a company you never heard of is usually not smart investing. One day I noticed about $180 missing out of my money market account. So I called E-Trade and asked them where my money went they told me it was a fee that I had been paying for months for having under 10,000 in my account. They had sent me my notice in the mail that I had just been filing away without opening because of my long term investment plan. They had my email address but didn't bother to tell me on their website or by e-mail.
Now I'm not telling you this to scare you or to keep you away from E-Trade all though I won't ever use them again. I told you this so you can learn from my mistake. Pay attention to your accounts so companies cant get away with robbing you like they did by changing policy on an existing account without my approval. Of course their excuse before I sold my stock at a loss and closed my account was We notified you by Mail.
The next way you can invest Is by Individual Retirement Account (IRA). There are two different types. The first is a regular IRA and this is regulated by the government. You and your significant other if your married can invest a certain amount tax free into this account. I think right now it is 6500 a year if your married. All that info is out there on the web and is easy to find.
You are allowed to invest into the same things that you do with a regular account with a few minor exceptions but as I mentioned you don't pay tax. The risk is that if you take out money before retirement age you not only pay taxes but a 10% penalty. After all this is a retirement account so the 10% penalty is there to discourage you from spending your retirement on that Audi you always wanted. Usually if you keep your money in a account like this for several years and you have to take some out this 10% isn't a factor for two reasons. If you didn't have a IRA you probable wouldn't have money to pay for whatever problem your having and your IRA historically will make more then 10% on your money invested.
The second IRA is a ROTH IRA and it is different in many ways. First thing you will notice with a ROTH is you pay taxes on your money you invest but unlike a regular IRA you don't pay taxes when you take it out at retirement age where you do pay taxes on a Regular IRA when you take out. That means in a regular IRA you pay interest in growth but in a Roth you don't.
On both IRAs the age that you can start taking out for retirement is 59 1/2. You can leave IRA to whoever you want if you pass away.
Now for the third and my favorite, 401K. The reason I love 401K is because the people you work for are going to pay you more money for the same work. Nothings better than free money. The way this works is that the company comes up with what they want to do and it looks something like this, 50% of 6%. Which means that they will match 50% of your investment up to 6% of your total income before taxes. So I will give you an example.
If you make $35000 a Year with the formula above you could invest $2100 and you company would put in $1050 for a total of $3150. Now if you got paid every two weeks you would invest $78 or $39 a week.
Now to some of you that is a lot of money and to others that doesn't seem like that much but the market grows about 7% average that means if you didn't change the amount you invest and they continued to pay 50% you would have invested $21000 in ten years out of your own pocket but your total in your account would be $43521 and in twenty your 42000 investment would be 129.135 but that's not even realistic, because I wanted to keep it simple, you never got a raise so you could invest more. That makes a big difference the longer you invest that faster your money grows because of compounded interest.
Well I hope I didn't bore you with all these numbers Just remember that if your invested in the market and it falls like it did in 09 you heard all these people talking about how much money they lost. I can tell you that most of them are full of it. You can only loose money if you sell during that low time. Most of the people you know where talking about their 401K or their IRA. Money they were not going to touch anyway. So don't let them scare you by talking about their big losses. IF you know anything about the market then you know that now they have all of that back and more.
you might be thinking what happens if the market crashes and I loose everything. This is just my opinion but if that happens the only thing your going to have to worry about is how much ammo have you invested in.
I hope I have helped you in some way. Just remember if this changes your life the only thing I'm getting out of this is the satisfaction of helping you. Something to think about.