Investing 101: A Simple Guide to Get Started

Angel Investing 101: A Primer for Early Stage Startups

Back in high school, the lunch room was divided by social status. Football players sat at one table, while the nerds sat as far away from that table as possible.

That’s why movies like “She’s All That” became cult classics. It’s fun to think someone can pluck you from your uncoolness and quickly teach you everything you need to know about fitting in.

In our adult lives, we sometimes find ourselves at a figurative table, looking longingly toward the “cool kids’ table.” Maybe you’re sitting at the don’t-know-how-to-manage-my-money table, looking over at the cool investor’s table. Never fear! Welcome to the Everything Finance version of “She’s All That.”

Today, you’ll learn the basics of investing, helping you talk the lingo at the next cocktail party or dinner with the in-laws. You won’t leave here today knowing everything there is to know about investing, but you’ll be ahead of about half the US population (around 52% of the US doesn’t invest in the stock market).

Who Should Invest?

Let’s start with the most basic question – who should invest? The answer is simple: everyone needs to invest. If you ever plan to retire, you’ll need to do more than save your paycheck in a savings account.

Your money won’t grow enough to keep up with inflation that way, and you’ll need to save far more than you spend. Investing helps your money work for you, and the stock market allows you to earn more interest than you can anywhere else.

When Should I Start Investing?

Now you know everyone should be investing, but don’t rush out and start throwing money at the stock market. Make sure to cross a few key hurdles before you begin investing. In particular, have these two things beforehand:

  • Have Disposable Income: Don’t forgo paying bills so you can invest, thinking the stock market is some sort of lottery. If you have debt, many experts recommend forgoing investing in all but your company’s 401(k) until you’re debt-free. This is because your employer offers a 401(k) match, and by not investing, you’re leaving money on the table. Of course, you can do both – pay off debt and invest in the stock market – if you have the funds.
  • Have an Emergency Fund: If you’re constantly worried about unexpected expenses, you won’t invest wisely. Build a budget, save up an emergency fund of 3-6 months of expenses, and then start investing.

How Can You Start?

The easiest place to begin investing is with your company’s retirement program if they have one. If you’re self-employed, research options for saving for retirement. Once you’re comfortable, you can branch out to a brokerage firm for additional investments.

Investing 101: Basic Terminology

Before investing, you need to understand basic investment terms.

  • Stocks: When you buy a stock, you’re buying ownership in a company. Stocks are valued based on the company, and prices change frequently.
  • Bonds: Bonds are loans you make to a company or government. They pay you back with dividends at set intervals. Bonds are generally considered a safe investment.
  • Commodities: These are investments in raw materials or primary agricultural products. The prices are often the same for different producers of the same commodity.
  • Money Market: Investing in short-term borrowing and lending, such as CDs, Treasury Bills, and municipal notes.
  • Mutual Funds: Investment funds that pool money from investors to purchase securities. They are professionally managed and consist of various investments.

6 Basic Principles of Investing

  1. Buy Low, Sell High: To make money, find undervalued stocks and sell them before they plateau or decline. Reinvest profits for exponential growth.
  2. Research: Always research before investing. Look into brokerage firms, mutual fund management, and the companies you’re interested in.
  3. Invest in What You Know: Focus on industries you understand, as this helps you make informed investment decisions.
  4. Invest for the Long Haul: Don’t panic during market drops. History shows the stock market recovers over time.
  5. Diversify: Spread your investments across different types to manage risk effectively. Your diversification strategy will depend on your age, risk tolerance, and market conditions.
  6. Be Your Own Investor: Make informed decisions based on your research, not others’ advice. Remember, it’s your money at stake.

Final Thoughts

Investing requires learning and patience, but with these basics, you’re well on your way to joining the cool investor’s table. Continue researching and make informed decisions to secure your financial future.

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