FAQ about investing

What can investing do for me?

It can help you build financial security, and give you more choices in life. Starting early takes advantage of the miracle of compounding. Over time, the earnings on your investments can multiply your money many times.

I want to invest. What should I do first?

Investing means putting your money into financial assets that will grow over a period of many years. Before you start, make sure you have separate money set aside for short-term needs and emergencies. We call this a “comfort-cash cushion”.

Once you have that in place, the next step is to contribute enough to your employer retirement plan– 401(k), SIMPLE IRA, etc. to get the employer matching funds. No employer plan? Then set up an IRA and contribute to that. See our Beginner Investing page for more tips on where to start.

Should I buy individual stocks?

We don’t recommend it for beginning investors, due to the increased risks. You have to be willing to devote extra time to research and monitor individual stocks more closely. Before you go there, first build a diversified portfolio of mutual funds and/or exchange traded funds. Many successful investors just stick with mutual funds.

What’s a mutual fund?

A mutual fund is a collection of stocks, bonds and/or cash investments that have been pooled together into a group or fund. Think of it as a “casserole” of investments. Each mutual fund has a unique recipe of financial ingredients.

Buying shares of a mutual fund gives you diversification by spreading your risk around to many different companies. Look for no-load (no selling fee) mutual funds. To see how mutual funds work, join a virtual shopping trip.

What are exchange traded funds (ETFs)?

ETFs are pools of stocks or bonds that are bought and sold by large institutional investors throughout the trading day. Individual investors can buy them through a broker-dealer, since they trade like stocks. Most ETFs are made up of securities that follow a public index, similar to an index mutual fund.

What’s an IRA?

An Individual Retirement Account (IRA) is like a gift wrap that can go around many different types of financial investments. Picture a colorful gift bag (the IRA) into which you can put investments like CDs, mutual funds, exchange traded funds, individual stocks, bonds and more.

Our government (Uncle Sam) makes the rules about what, when and how much you can put into this IRA gift bag. Follow the rules, and you get to defer or reduce taxes. IRAs come in two main types–Traditional and Roth. More on IRAs.

Where’s a good place to put my investment money?

That depends on your age, your tolerance for risk, and other factors. If you’re investing in your employer plan, you’ll be limited to the choices offered there. If you want to keep investing simple and balanced, look for a target-date mutual fund (also called life-cycle funds or all-in-one funds). We call target-date funds the “little black dress” of retirement investing. Slip it on, add jewelry, and you’re done. Join our email list for a free report on Target-date funds, and more investing advice.

Beyond those funds, you have thousands of choices.

Where can I find definitions for various financial terms?

One site that just deals with financial terms is http://www.investorwords.com/
Enter a term in the search bar at the top of the page.

It all seems complicated. Do you give personal advice?

Investing can seem overwhelming at first, but practice makes it easier. The Silver Purse offers financial coaching to help you build knowledge.

You can also join us on Facebook (The Silver Purse) and ask general questions. We’ll try to answer or point you to some good resources. See you there!

You may want to seek help from a financial advisor. We recommend selecting someone who bases their advice on a fee-for-service rather than commissions. That way, you’re likely to get the most unbiased advice. Still, it’s important to understand the basics of investing. After all, no one cares more about your money and your future than you do.