David
When should I start investing money into the stock market?
As a college junior, I know I should start thinking about investing money and also saving for retirement, but I'm not sure how much money I should have in my account before I can start doing this. #money
2 answers
Kim Igleheart
Kim’s Answer
David,
It's great that you are thinking about investing!
As a general rule of thumb, you should have ready access to enough money to cover 3 - 6 months of living expenses. This is called your "emergency fund." You don't want to have to pay to borrow money from someone else if you need a major car repair. I like to set up separate accounts for different things, rather than have just one account. So, you could establish a money market account or a savings account in addition to the checking account.
It is a little difficult to learn to accept risk. For example, if you have $100 and lose $10, it's not that significant. But, as your investment starts growing, and you have $1000 but lose $100, or have $10,000 and lose $1000, it's easy to think, wow, that's a lot of money. In reality, it is 10% each time! Don't be too quick to panic when the market hits bad times. I started investing 30 years ago. Today, I have a nice sum of money - 55% of which came from interest!
I'm not a financial advisor. But, recommend you research accounts such as ROTH IRA's, deferred comp accounts (available to govt employees - not sure about private sector), and other tax advantages available. Also, should you work for an employer that offers a "401 match," ALWAYS contribute enough of your paycheck to get the full match. For example, if they say they will match your contribution up to 5%, you will contribute 5% of your paycheck, and they will contribute an equivalent amount!
Best of luck to you!
Kim
Scott Babcock
Scott’s Answer
Compounding is the process whereby interest is credited to an existing principal amount as well as to interest already paid. Compounding can thus be construed as interest on interest—the effect of which is to magnify returns to interest over time, the so-called "miracle of compounding."
Every little bit you can contribute will add up at your age. I am also not a financial advisor, but I do use a lot of financial tools and resources. Their are so many options available for your to access and use. Whether it is e-trade or others, they make it easy to set up an account. After doing so, most will have a feature where they will manage your portfolio, often for a very reasonable fee. However, most will tell you the fees are what will add up over the long run and detract from your earnings. Sometimes yes, sometimes no but just consider fees when making your decisions. If you decide to invest yourself, just FYI my research usually centers on googling the most profitable companies over the last 3, 5 and 10 years and investigating deeper the companies I find to be a target. But again, talk to others in the know as their are many strategies out there. The bottom line, the earlier you engage, the faster your portfolio will grow and prosper!