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How can I invest and profit from that?

If I start investing, will I get money over the months to come? If that doesn’t go well then I should have a stash of extra money on the side if that doesn’t go well right?

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Subject: Career question for you

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John’s Answer

Leah thanks to the growth of the web, it's easier than ever to open an investment or trading account. The last couple of years have also seen several firms reduce their trading commissions to zero, meaning it's also cheaper for beginners to buy stocks and funds than at any point in history.

When Robinhood launched in 2013, its decision to target millennials with commission-free trading irrevocably changed the market. In 2019, many of the world's most well-known brokers, including TD Ameritrade, Charles Schwab, and E-Trade, finally followed suit. Today, millennials, often unfamiliar with the stock market, account for more than 80 percent of Robinhood users. Robinhood has some drawbacks, however. Robinhood leaves you to your own devices when selecting your investments, but beginners might feel uncomfortable with that level of responsibility.

If you'd like to access the benefits of investing without worrying about choosing your specific holdings, Betterment is a great option. The company uses a robo-advisor model. When you create your account, you tell it about your preferred level of risk, investment objectives, time frames, and other pertinent information. Betterment will then automatically create your portfolio. You can use Betterment to open regular taxable investment accounts, IRAs, 401Ks, and even checking accounts.

You might be a beginner today, but if you're serious about your financial future, you need to get your head around the ways markets work. It's the key to clearing your debt and building your wealth in later life. Remember Leah, if you use any of the apps, your money is at risk. Investments in securities can go both up and down in value. You should never invest more than you can afford to lose, and if you're unsure how to proceed, seek professional financial advice.

Hope this was helpful Leah
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Ann’s Answer

Hi Leah - I am glad you are thinking about investing! It's a great way to prepare for your future. Before I answer, I must tell you I am not a certified financial planner and you should seek expert advice before making any large investments. This response is just to fibe you some ideas to get started.

There are lots of ways to invest and make a profit, and I recommend having a wide portfolio of investments that you start to make over time. A
few examples are stocks, bonds, money markets, life insurance and real-estate.

To decide what your first investment should be you will want to answer the following questions.

1. What are my financial goals? For example, are you wanting to set yourself up for retirement or are you hoping to have some extra spending money?

2. Is my goal short term (make money in 1 to 3 years) or is it long term (10 or more years)?

3. How much money do I have to invest? How much can I afford monthly?

4. How much risk am I willing to take? Am ok with losing some or all of the money I invest?

Once you have these questions answered you can start exploring different options.
Getting into stock investments is probably the one most commonly talked about, but there is a lot to learn when buying stocks. The market is currently struggling, so I would be careful. If you really want to try your hand at it I recommend starting with an amount of money you are comfortable with losing and using an app like Robinhood where you can but portion of shares.

Money markets and CDs are other short-term investments you can make where you only have to keep your money in the fund for a year.

There are a ton of long-term investments and the one I recommend first is a whole life insurance policy. This is something you want to buy young. The younger and healthier you are the cheaper the policy will be and the payout will be more. Unlike term life insurance, whole life insurance will start to pay you a monthly annuity (dividen) once you have had the plan for so long. If you go with a well established bank the is very little risk in these.

Another great long-term investment option are retirement plans like 401Ks and IRAs. These are funds you put your money into each month and the financial institurion then take your money and invest it into a wide array of stocks and bonds and manage the investment for you. You can determine how much risk you want to take and even decide what types of investments you want to contribute but they will handle all of the brokerage for you. The big thing with these investments is that you cannot touch them, without penalty, until you are 65. You can borrow from them and pay yourself back though.

I hope this helps! I know it's a lot of information so just focus on one type of investment at a time. Good luck!
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Hak’s Answer

Hi Leah,

a few basic tips are in order first:
1. Invest for the longer term - you should think about investing over the years rather than a get rich quick perspective. While it looks pretty dire right now, all investments have grown over time and this is especially true for stocks.
2. Diversify - which means don't put all your money into 1 investment. However small, you should think about investing into multiple assets since this will lower the overall risk in your investment. In case of stocks, buying into several different companies makes the most sense. If you buy into funds (for example, S&P 500 ETF from Vanguard), this takes care some of the diversification since it's a fund that's made up of hundreds of companies (500 largest companies in the case of S&P 500).
3. Invest regularly - invest monthly or at least regularly, however small the amount. This will help you ride out the highs and lows of the investment cycle. And since your investment will grow over the longer term, you will eventually profit from it without exposing yourself to unnecessary risks.
4. When it comes to cash, I would recommend always keeping a small cash fund in case of emergencies but if you have extra money you don't need right away, there are safe investments (treasury bills for example) that will guarantee a return, though small, that you can consider. Again this goes to diversification and investing into multiple assets.
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Dan’s Answer

It is very good that you are asking theses questions because learning about investment options (early in life) will be immensely valuable to you. I will explain a few investment concepts then answer your question last.
Note: I am not a professional financial advisor and space does not allow me to explain all aspects of investing.

A simple way to start investing is to invest in a mutual fund from Vanguard or Charles Schwab. Mutual funds are investments with collections of stocks (and bonds) instead of investing in individual stocks.
The Vanguard 500 Index Fund Investor Shares (VFINX) is a 100% stock fund that will grow or lose money over the short term. The (VWELX) Vanguard Wellington Fund Investor Shares is about 65% stocks and 35% bonds so it's price will not grow or lose money as much over the short term (as compared to the VFINX fund). Vanguard has MANY more funds and Charles Schwab offers similar funds. Also note that you must consider what you are saving for and when do you plan to use the money. Note that you normally make more money (or lose more) with the riskier investment funds. The less risk, the more stable your gains and losses should be (all mutual fund investments may go up and down over time). Risk is determined by the ratio of stocks and bonds as well as the specific stocks and bonds.

BTW... If you invest in an after-tax mutual fund (so that you have no restrictions on when to withdraw the money), you may have to pay taxes on your capital gains and dividend income (depending on your income level), You can also invest in a ROTH, 401K, or IRA but each has unique tax advantages to be considered (you can only withdraw the money without penalty when you are aged 59.5 or later) . There are other pros and cons for these two options so you should learn a little more before making a decision.

So, which fund should you select? If I had to select, I would suggest VWELX but there are MANY other options and, until you fully understand the couple sentences above, I would delay the decision.

Please invest small amounts (that you can afford to lose) until you fully understand your decisions and consider contacting a professional financial advisor if you are investing large amounts (although they will charge you for their services).

And finally, my answer to your specific question:
If you invest in an after-tax mutual fund, you will normally accrue capital gains and dividends every three months but if the fund value drops, you may not get anything. If the fund price drops, your base amount (what you originally invested) may also drop - however a mutual fund value will normally increase over the long term.

Dan recommends the following next steps:

Look at the Kiplinger website and/or Google search for "financial investing advice".
You can call Vanguard and/or Charles Schwab and ask a few questions relating to fund options but they are not likely to provide actual investing advice..
Look at the Vanguard and Charles Schwab websites - they have plenty of investing information and advice.
Sign up for investing and retirement newsletters (Google search for "financial independence") and keep reading. Your knowledge will grow over time so you should be able to avoid many of the fees related to investing.
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Nicholas’s Answer

Your question reminds me of a fairly simple investing strategy called, "Dollar Cost Averaging". You mention "If that doesn’t go well then I should have a stash of extra money on the side if that doesn’t go well right". The idea of dollar cost averaging allows an investor to purchase the same small amount of an asset on a regular basis. If the desired asset does not perform well in the market (weeks, months, or years) then this strategy will not only reduce your cost basis, but alleviate any bear market pain.

For example - an investor spends $500 every two weeks (Monday) to buy NVDA stock. Let's say the stock was trading at $150.52 at 9:30 A.M. (allowing the investor to purchase 3 full shares) on the date of the first purchase, but it jumps to $159.88 two weeks later due to good news and a positive NASDAQ index swing. Side note - the investor may believe that him or her lost money, but in reality, the investor does not incur a realized loss until an asset is sold. The investor purchases an addition 3 full shares of NVDA stock at $159.88 at 9:30 AM Monday morning using dollar averaging. The new cost basis of the investment is $155.20.

This strategy can be especially helpful during a time where the market is highly volatile (changing quickly) due to federal reserve hiking interest rates, trades on speculation, high inflation, etc.

I hope this helps!
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Seth’s Answer

Hello,

Starting to invest can be very confusing, and it is difficult to know where to start your investing journey. I want to try to provide an answer to your question that will be easy to understand for someone without a lot of knowledge on the subject. I also wanted to share with you some other ideas on personal finance.

1. You mentioned having some money set aside. It is important to have an emergency fund saved up. I would suggest an online bank with a high yield savings account. Synchrony is a great option. They currently have over 2.5% interest on their savings account. A big national bank like Bank of America will offer 0.01% interest. So before you even start your investing journey I would work on having your savings to support you for at least 3 months built up first. This will help you to avoid going into debt if you lose your job. This money should only be used for a true emergency. If 3 months savings seems impossible to reach, then you can work to save up $500. Have that be your goal. Once you reach that goal you can start to invest in the stock market while still adding to your savings each month.

2. Investing is a long term goal to increase your wealth. Especially with the current stat of the market. Trying to time the market almost never works. Even the best investment banks are never completely sure what the market will do. But investing now and holding those investments for a long time can allow you to see future growth once the market rebounds. Once way you can do this is to invest in an index fund. An index fund is made up of a larger group of individual stocks. This is beneficial, because if you are invested in one stock, and that stock goes down you lose money. But, a strong index fund will often increase as the overall stock market increase. VTI is a great option for this as it tracks the entire S&P 500. Buying one share of VTI means you will have ownership of all 500 companies in the S&P 500. VTI also has very low investment fees (Money you pay to the broker), which means you keep more of the money you earn. This can be a substantial amount over the course of 20 - 30 years. Investing the stock market is not a quick way to get rich, but it is the most accessible way for someone of any background to build wealth.

3. It is important to stay out of debt. If you are in debt you are paying interest that you could be using elsewhere. For example, if you buy a new car with a 5 year car loan with a $500 monthly payment at 3.5% interest, you are losing the opportunity to invest that money into the stock market. The stock market has averaged returns in the 8-9% range. That means you are paying the 3.5% interest for your car, and losing 8% interest in income from your investments. If possible, saving and buying a used car in cash is the best option. However, if you need a car loan, then a used car would be best. And, don't buy a new car as soon as you pay off the old one. That ensures you will always be in debt.

4. Finally, being smart with your money means knowing what you are spending it on. A budget is great for this. A very simple budget you can do is as follows. Take your monthly take home pay. Subtract your savings and investing for the month first. Then subtract your bills for the month. Whatever you have left over is yours to spend. If the amount of money left over after you subtract for your savings and investings goals, and you pay your bills is not as high as you would like, then you can try to find ways to cut back, and only spend money on what is truly important to you. You can also work to increase your income over time as well.

There are many things you can do to increase your wealth overtime, and the best methods are usually the simplest ones. Investing is a long view game. Learnings as much as you can now will pay dividends in the future.

A few suggestions for personal finance resources.
The How to Money Podcast (Go to their website and click on the 'Start here' button)
Mr. Money Mustache
Choose FI
Financial Samurai

There is a lot of good info out there. The important thing is to start learning today!
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Jindrich’s Answer

Hi Leah,

You are asking a great question. Investing is a way to participate in open market, buy shares of companies that you believe will do well and, if things work out, make a profit.

First, as you suggested, your investment can go up or down in value. That can be exhilarating (when the price goes up) and very stressful (when the price goes down). This is probably the most challenging part of investing - your emotions and how well you can manage them, especially in the difficult times. Therefore, you should ask yourself first what you are trying to accomplish and what you are prepared to risk. In a way (and of course this is a simplification but not too far fetched) think about investing like you would do about going to a casino. Before you invest your first dollar you should be clear with yourself on when you will sell your holdings either because you achieved your goal or you lost enough and you want to cut your loses.

The second part of investing is an answer to the questions "What to invest in?". There are literally infinite ways you can invest and there are many people who do it as their job and who can advise you. It can get very complex in details but overall a common sense approach helps a lot. Some of the good advice is to invest in what you know, invest long term, keep your emotions out, etc. Here are some of the best advices from Warren Buffett https://www.fool.com/investing/how-to-invest/famous-investors/warren-buffett-investments/


To get started I suggest you learn as much as possible about various investing strategies, read blogs, work with financial advisors, etc. It takes time but it is time well spent because most of your earnings can be invested one way or another (your retirement plan, kids education, your house, etc.) and your knowledge can help you make sound investment decisions.

Finally, if you google investment advice from Warren Buffett you are off to a good start.

Hope this helps.



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Sikawayi’s Answer

Hello Leah, this is an excellent question. I think it's good that you would like to put away money, I understand your need to want to invest but I will tell you it's been my experience in order to make money you have to spend money. Most firms or private companies want you to invest a minim of 2000.00, you may see a return on your invest or you may not the truth is if you can't afford to lose the whole 2000 then I would suggest you find another way to save money like a savings account, or a 401k these investments are a little bite safer and it will give you room to grow into investing. Best of luck
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