How to Start Investing Money – Where to Begin
Long term investing is an investment that is held for a long period of time. Technically, this could mean holding onto the investment for over 1 year. However, holding onto the long term investments for more than 10 years will maximize your probability of a higher return.
The biggest long-term investment is retirement. If you have access to an employer sponsored 401(k) with employer match contribution, make sure you are taking advantage of the free money that is offered with this program. Other options for saving long term for retirement include a Traditional IRA or Roth IRA. If you are new to investing and looking for a long term option, these retirement accounts would be a great way to start saving for your future.
Another great option for long term investing are individual stocks, including low cost index funds, mutual funds or ETF’s.
Investing in the Stock Market
While investing in stocks for the short-term can often be significantly rewarding, it can also be risky and stressful. True investors will invest in a stock and hold onto it for years to come. Take Amazon for example. Had you invested just $100 at the time the company IPO’d in 1997, today that same amount of stock would be worth of $117,000! As they say when investing, the real money is made in sitting.
An “IPO” is an “Initial Public Offering.” This is a time when companies are typically looking for more capital to expand in some way. Perhaps to build factories, or buy more machinery. One could compare this process to the “Shark Tank” TV show. They are selling a portion of their company away for an “initial public offering.” The company receives their funds for the shares on day 1, and from there, they are traded freely in the stock market by traders and investors. While obviously not all stocks are Amazon, IPO’s are a great opportunity for long term investors, especially with companies that you recognize and know well.
However, an effective tip when purchasing a recent IPO is to wait until just a few weeks (possibly months) after the IPO shares hit the market. As you’ll see from numerous stock charts, if you go back to when the price IPO’d, there is often an “IPO sell off” period that follows the initial “hectic” buying period. This is a great time to take advantage for the long term haul. You can take your chances picking your favorite companies to hold for years, but when you buy IPO’s, you often purchase the company at or near the lifetime lows.
Choosing a long term stock can eliminate some risk because the stocks can survive the highs and lows of the market giving the stock enough time to create a positive return if given enough time.
Wherever your investment philosophy may lead you make sure you have your plans and goals in place before starting your investment journey.