Investing, using money to make more money, has many advantages. Most people have heard about investing, but have no idea how to get started. There are numerous different kinds of investments, but the most common are stocks, bonds, and mutual funds. 

Stocks 

When someone buys a stock, they are essentially owning a tiny portion of a company. Investing in individual stocks requires a good amount of research, but it could be worth it in the end. First, it is important to determine one’s risk tolerance, by analyzing if one is willing to risk more to make more money. 

Lower Risk tolerance 

With a lower risk tolerance, it is better to invest in a large company, so-called “Blue-Chips”, such as Coca-Cola, Home Depot, or Apple. These company’s stocks have seen relatively steady inclines over the past years. These companies are well-established and have less fluctuations in normal conditions. However, these investments will likely see a slower, but steadier incline.  

High Risk Tolerance 

If someone has a higher risk tolerance, it may be suitable to invest in smaller companies that have the potential to grow more quickly. These companies are less established, but can be rewarding since the company has not yet fulfilled its potential growth. These companies have the potential to increase a larger percentage, meaning the stock could escalate more rapidly in value. However, these companies can be more unstable and have a higher chance of decreasing in their share value. For example, when Microsoft first went public, looking back, it would have been a great decision to invest a large sum of money into their company, but the consumer back then likely would not have known that the company was going to be as successful as it was. 

Do not be discouraged 

Also, when investing in stocks, it is important to not be discouraged when their stock decreases in value. Daily fluctuations in the value of stocks are common, so it is important to, instead, look at the long term. Even year to year there can be fluctuations in the market. In years like 2001, 2008, 2020, and even 2022, the stock market saw significant declines but eventually went back up to higher levels than they were before. So even though it looks like investors may have lost money in certain years, this is only a temporary loss, and the value of their investments could inevitably rise to even more than they started with. 

The Rule of 72 

To see how long it could take for an investment to double, this is a helpful mathematical rule to know. The general rule for the growth of an investment is the rule of 72. For this formula, take the number 72, and divide it by the average annual growth, and it will give the amount of time it takes, in years, for an investment to double. For example, this formula shows that if an investment grows 7% every year, in approximately 10 years, the investment would double. (72/7= approx.10 years) By comparison, if an investment grew 8%, it would take only 9 years for the investment to double. (72/8=9 years)  

Bonds 

Bonds are another type of investment in which an investor is typically promised a stream of income over a specified period of time in exchange for loaning money to the issuer of that bond. For example, if someone invests $10,000 in a 5% bond, they would receive $500 in interest each year, and when the time period is over, the investor gets their $10,000 back. Most commonly, bonds are issued by corporations or governments. 

Mutual funds 

Mutual funds are essentially different stocks or bonds grouped together that are designed for certain goals. For example, some mutual funds are designed to increase in value over a longer period of time and are usually lower risk. Other mutual funds have different companies that are likely to grow faster but are slightly riskier and more volatile. Some hold bonds in their portfolios which could payout periodic income. 

Advantages of mutual funds 

 The benefit of mutual funds is that they take out the work of having to research the trends of different companies since it is already picked out by an investment manager at the mutual fund company. Another advantage is that they include many different stocks and bonds, so if one of the holdings in the mutual fund goes down, it will not have as big of an effect on the total portfolio. Mutual funds diversify one’s investment, and there are thousands of mutual funds to choose from that are produced by mutual fund companies, such as Fidelity, Vanguard, American Funds, Putnam, etc. An investor pays a mutual fund company in order to have access to their mutual funds, so the amount of money gained could be slightly less in total, but the convenience and the management of the portfolio are worth paying a fraction of the investment. 

Recommendations 

For stocks and mutual funds, it is recommended to work with a licensed financial advisor. They are highly educated in the industry and will manage all of their clients’ investments for them. However, they are not required to invest in stocks, and anyone can do it regardless of how much money one has available.