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What is the hardest part about investing your money?

I'm a soon-to-be college student and I want to start to plan my financial future. #investment-management #savings #money #investor #money-management

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Kim’s Answer

Well, the hardest part is normally just getting started! However, if you are investing in mutual funds, stocks, or other such options, for me the hardest part was letting the money sit there when it started to suffer losses. People who try to move their money around all the time many times do worse than those who do nothing. Even knowing that, it's still hard to suffer losses. I had to keep telling myself to look at it in percentages, rather than dollars. Here's what I mean. Let's say you have $100, and you lose $10. You tell yourself -- that's just ten dollars, no big deal. But, there comes a time when you are dealing with more money. If you lose $1000 out of a total $10,000 portfolio, or $10,000 out of a $100,000 portfolio, it's all the same as the $10 ---ten percent. It just sounds so much worse!

It's also difficult to become knowledgeable, and to know who to trust. The younger you are, the greater risks you can take. That's because you have a lot of time before you retire, and your portfolio has time to recover from any bad years. Many 401s have options. So, you can decide you want to pick what funds you invest in, or, you can decide to go with what they call "target" funds. The funds are targeted for when you plan to retire, starting out with higher risk and getting more conservative over time. A "fund" is a mix of stocks, bonds, and cash. Investing in funds is easier than selecting individual stocks, but, there's a certain attraction to trying to pick out your own stocks.

As you start out in life, remember to set aside money for different things. That is, you want to have an "Emergency Fund," so you can handle unexpected expenses. (an amount equivalent to 3-6 months of living expenses.) You may be wanting to save up for a wedding, house, car, child's college education, etc. So you may have money saved in several different accounts.

Other advice: Disability insurance. If it's offered from your employer, get it. Or find a plan from a private insurance agent. It is relatively inexpensive, and replaces part of your income if you are out of work for a while. When we are young, we sometimes don't think about things like that. But, a car accident made me glad I had the policy! Don't buy every insurance plan that comes along, but, some are important to have. Oh, and if you have pets, please get pet insurance! The cost of pet surgery, cancer treatment, etc. is pretty expensive. Learn to live within your means (don't buy the most expensive car the bank will approve you for!), distinguish between wants and needs, and avoid credit card debt as much as possible! All of these things will help give you more money to invest!

It's awesome that you are asking these questions at such a young age! Good luck to you!

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John’s Answer

Ernie focus on paying off debt first, nothing can derail your finances faster than the accumulation of high-interest debt, for example on credit or store cards. If you do use a credit card, it is important to prioritise paying it off on time to avoid the type of spiralling debt that can seriously harm your credit score.

To avoid debt, stick closely to your budget. If your budget says you don’t have the money to buy something this month, don’t use your credit card to do so. The repayments will eat into next month’s money and make it increasingly difficult to stay on track. It’s important to set aside any savings before moving on to non-essential expenses. To help you prioritise your savings, think about what would happen if you were faced with an unforeseen expense. Could you afford new car payment if yours broke down? What if you lost your job? A general rule of thumb is to try to build up three months’ worth of essential outgoings in an instant access savings account for emergencies. With interest rates at rock bottom, savings accounts are offering minimal interest on savers’ hard-earned cash. If you already have sufficient emergency savings, it may be worth putting further savings away in a fixed-term savings account, which offer higher interest in exchange with locking your money away for a set period of time.

Stock markets can go up and down, so your investments can fall as well as rise; however, a financial adviser can assist you in building an investment portfolio that reflects your personal risk profile. Investing is a way of getting higher returns, in exchange for a certain level of risk. This means that you can choose the level of risk you want to accept (although lower risk often means lower returns). One of the scariest things about making investments for beginners is the volatility of the stock market. When you see your funds temporarily go down, you may be tempted to pull your money and keep it in a no-risk savings account. In general, you want to start investing as soon as you have a solid financial base in place. Doing so allows you to leave your money invested for the long-term – key for maximum growth – and be confident in your investment choices through the natural ups and downs of the market. Compound growth requires time. The earlier you start investing, the more wealth you can create with fewer dollars. When it comes to investing, time is your most powerful tool. The longer your money is invested, the longer it has to work to create more money and take advantage of compound growth. It also makes it far less likely that one harsh market downturn will negatively impact your wealth as you’ll have time to leave the money invested and recover its value.

Hope this helpful Ernie

Thank You Jim. If we discipline ourselves to do the things we need to do when we need to do them, the day will come when we will be able to do the things we want to do when we want to do them! John Frick

Thank You Sam. “At the end of the day it’s not about what you have or even what you’ve accomplished… it’s about who you’ve lifted up, who you’ve made better. It’s about what you’ve given back.” – Denzel Washington John Frick

Thank you for your continued support Kim. Success is not a destination: It is a journey. The happiest people I know are those who are busy working toward specific objectives. John Frick

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Romeo’s Answer

The hardest part in investing your Money is the research part. Especially when you are not well versed in the world of Finance, you can get really intimidated by the plethora of information available. As a personal experience, It took me 2 years of research and education and talking to people before I started investing my money. Here are some tips that I gathered along the way (Disclaimer : this is based out of my personal experience which worked for me so these are completely relative):

1. Talk to a Financial Adviser - Find one who is really passionate in helping people manage their finances more than "selling" investment options. Work with them in assessing your Financial Risk, and drafting your Financial goals so that you will have guidance in making calculated decisions.
2. Do not trust everything you read in the internet. Not all information in the internet are really helpful to you as an investor. Sometimes, people will just post results without really getting into the process. Get your information from credible sources.
3. As much as possible Stay away from Debt and impulsive buying.
4. Stick with your "why." Why are you investing? Surely you have a pressing reason of doing this. Always remember that reason because that is your core. For me, when everything else becomes really complicated, Being reminded of your core helps in keeping you in track.
5. Diversify your Portfolio. Once you are already started investing, remember to make sure that you have multiple streams of (Passive) income. This will also be one of the advises that a Good Financial adviser will offer.

I wish you well with investing your money and I hope that in the near future, your Money will start working for you.

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Sam’s Answer

The hardest part of investing money having free money to invest. The first thing that you should try to do is pay off any debts you have such as credit cards, car payments, and student loans. Then you need to start putting aside as much money as you can each month that you don't touch except to invest. You should also have 6 months of savings cash for emergency purposes. One of the easiest ways to set aside money for investing is to open a retirement account such as a Roth IRA or participate in your company's offers a 401K retirement account.

The next thing you need to learn is what type of investor are you. Do you want to be active or are you a passive investor? They way you learn that is by learning about investing in different types of assets such as stocks, mutual funds, ETFs. If you want to be an active investor you need to really learn risk management and risk tolerance. If you think investing is reading WallStreetBets on Reddit and trading Game Stop stock, you will lose a lot of money because that is gambling. Being an active investor requires a lot of reading and researching companies and industries and investing in the long term.

If you don't have time to do this, then you should invest in a S&P index mutual fund or ETF such as the SPY and invest your money each month. Over the long term, your money will grow over time.

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Leland’s Answer

Hi Ernie,

When I started college, I wish I had some understanding of how to save money. Here are a couple of things that I've learned:
1. If you have a job, you can set aside a portion of each paycheck into a different bank account such as a savings account. By setting up your pay to add a percentage, let's say 10%, you will automatically start saving money. If you're diligent, you can leave this money in the savings account and let it grow. This is one of the more safe routes to holding on to your money for the future, but does not provide a ton of growth potential.
2. The first example I gave does not provide the quickest growth, but it is secure. An option for quicker growth would be to invest in stocks. A simple investing app like Robinhood is a good start. However, there is always risk associated with the opportunity for quicker financial growth, as stock values rise and fall.
3. Cryptocurrency is still relatively new. Things like Bitcoin and Eth are trending up. You can use an app such as Coinbase to build a crypto portfolio, then use apps like BlockFi to enhance the interest you gain. The drawback is that currently, there aren't many good streamlines for pulling money out of cryptocurrency and converting back to physical money. I would suggest looking into crypto if you are willing to play a long-term approach to financial security.

When you hit the workforce out of college, you'll be given opportunities such as a 401k to provide financial security for retirement. Many companies will provide matching offers up to a certain amount, which is essentially "free money". When the time comes, I would suggest at least matching your 401k up to what your company matches. On top of that, you can add things such as a Roth IRA, which can provided additional security.

Lastly, I would suggest creating a budget. It is a lot easier to find out how much you are able to save, by figuring out how much you currently spend. Apps like Mint help track your current spending. It will give you visibility on your current spending habits, and help you plan how much money to invest into the options I had listed above.

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Mark’s Answer

Hi Ernie,

I did not invest when I was younger so I kinda have a regret that I should have started young. I started investing during the pandemic as I felt its the best time to buy stocks. Before you do it make sure you have income and make sure you are willing to take the risk as you might lose a big amount of money, so invest what can lose. I did a lot of research before I I invested in stock market. Nowadays there are several websites or video tutorial available, so the first step is to do you research, next is I asked advise from my friends who had done research. Then select the platform that you can use. Before buying stocks I had to create a google sheet about blue chip companies, checked their price history and make sure that you don't out your eggs in one basket, make sure to spread-out your money on different companies.

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Hossam’s Answer

I don't want to give you a general answer or a very long one that you will probably not read, but what I can say is that first, you need to prioritise paying off your student debt if any as the first order of business. The second you finish that, I advise you to enter the stock market even on a very small scale practice account first, until you get the fundamentals of how the whole process goes. However, it comes with big risks and you could lose a lot of money, but it still is very rewarding when done right and with the proper due diligence, you will propel yourself to a whole new level of investment that is very rewarding. You can also start looking at some cypto as it is beginning to shape the future that is coming. But do not go after these meme cryptocurrencies that scam you out of your money. I'd personally recommend Bitcoin, Ethereum and maybe Cardano.

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Ibrahim’s Answer

The hardest part of investing your money is accepting the risk and knowing your risk appetite to be able to determine how much you are acceptable to lose.

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Kenneth’s Answer

Hi, Ernie! Congratulations. I'm glad to see someone like yourself asking questions about investing. All too often, I come in contact with people who are sorry that they didn't learn about investing and money management sooner in their careers.

Here are some challenges when it comes to investing:
1. Understanding that investment involves risk, and risk means that there is a chance you could lose some or all of your money. Tolerance for risk varies from person to person.
2. There is a great deal of bad information out there. People promote all kinds of investments, however, the investments you chose should be tailored to you and your goals, and not every investment will be appropriate.
3. DO NOT CONFUSE TRADING WITH INVESTING. Trading is short-term buying and selling. Investing involves putting your money to work for the long term.
4. Multiple investments should work together like an engine, and be designed to help you achieve a certain goal.
5. Be patient and keep learning (never stop).

Kenneth recommends the following next steps:

Study companies you know and are interested in.
Learn about index funds and exchange traded funds. These may be great ways to invest for you.
Keep your costs down.

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Jim’s Answer

The hardest part for me was taking the leap of actually doing it. There are so many options and it can be overwhelming.

A good formula to follow is this. Whatever your age, that percentage should be invested in bonds. The remainder should be in stocks. These number can change with each birthday. Bonds are a safer, steadier investment so as we get older that's where new investments should go.

A simple way to buy and manage is through index funds. I buy Fidelity index funds that mirror the S&P 500 and the NASDAQ markets. These are easy sensible ways to invest on your own. I watched a lot the videos on a YouTube channel, Investing with Rose. She's great and explains things in simple terms. This is a good place to start if you want to learn how to handle things yourself.

There are also options involving investment brokers or apps that do the leg work for you but there are costs involved with doing that.
Your best bet is to start soon and at the very least, stay informed if you decide to have someone manage things for you.

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Amr’s Answer

I believe that there are a number of points to consider when investing:

1- Understanding the market.

A pivotal activity prior to your investment has to be understanding the market. This helps you grasp an idea on the trends, economics and forecasts of the market which in turn will affect your investment.

2- Risk vs. Reward.

Dreaming big sometimes lead to no sleep at all as we all know the general rule for any investment which is "the higher the risk, the higher the return". It's a real struggle determining the optimal combination between both aspects without being too greedy or too passive.

3- Savings and disposable income.

No matter what portion of your savings you're investing, you always have to have a back up fund just in case things go south. Use a portion of your savings for investments and leave the rest for a rainy day.