Investing is necessary for most people who want to retire, and it’s a key component of personal finance.
Luckily, it’s not as confusing as Wall Street makes it out to be, especially if you invest in index funds, which is one of the simplest strategies for new investors to implement.
Disclaimer: Just Start Investing is not a certified financial advisor.
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Investing 101:
How-To Guides:
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How to Start Index Investing Today
There are five simple steps when comes to index investing:
- Decide on the Right Investment Account
- Select an Online Broker
- Determine your Initial Deposit
- Choose your Blend of Investment Vehicles
- Set an Ongoing Strategy and Maintenance Plan
Getting started is easy, and you can get out full how-to guide on index investing here:
Investing 101
To keep things easy, here is a simple definition of investing:
Investing involves putting your money into an asset with the hope that the asset will grow in value or generate profit over time.
There are a lot of different strategies when it comes to investing:
- Stock Investing
- Bond Investing
- Dividend Investing
- Real Estate
- Options Trading
- Index Investing
- And more
Although, Index investing is our favorite, as its a proven and straight forward strategy.
Index Investing Strategy
An index investing strategy is simple – mimic the overall market (with a mix of equity and fixed income) with next to $0 in costs.
You do this by investing in index funds.
An index fund is the combination of an index and a mutual fund.
An index, simply stated, is a measure of something. In the financial world, an index measures a group of stocks, bonds, or a market. Examples include the S&P 500 or the Dow Jones Industrial Average.
A mutual fund pools money from multiple investors in order to purchase a larger, diversified group of assets. Mutual funds are typically managed by a person (fund manager), and investors are charged a fee for the convenience of this diversification.
An index fund combines the two concepts. Essentially, it’s a new and improved mutual fund that matches a broad index instead of hiring an expensive manager to pick stocks. This, of course, keeps expenses low and more money in the investor’s pocket.
You won’t beat the market with this strategy, but you are guaranteed not to lose to the market either. You’ll average steady, positive returns on a long term basis, which starts to feel a lot like winning.
Why Investing Matters
Without investing, you likely cannot retire.
The importance of investing is best seen through a basic example:
Let’s say two people each have $10,000.
One of them simply puts the money in a savings account that pays enough interest to offset inflation. The other invests the money in an index fund that averages a 7% real annual return.
After 40 years, here’s what each person is left with:
- Savings Account: $10,000
- Index Investing: $139,948
Investing is what helps your money grow over time, and starting today is important so that you can get as much time on your side as possible.
More Investing Tools
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