Congratulations! When you take the formal steps to becoming an investor, you're becoming that much more self-determined. You start life relying on your parents to make your financial decisions, and by the time many of us advance to young adulthood, we might go so far as having someone at our employer's accounting department recommend a 401(k) for us. Sure, this is technically the desirable "passive income" under some definition, but with too much emphasis on the adjective and not enough on the noun.
What It Means to InvestMany people get intimidated at the idea of buying their own investments, and thus never commit to doing so. On the other end of the continuum are people who are only interested in buying Google at its initial public offering price ($100) and selling it four years later at its $714 peak.
You can do that - somebody must have - but the chances of succeeding at it are tiny. It's important to remember that investing is not defined as "trying to build wealth with as little effort as possible." That's not investing, that's speculating. We have lotteries for that. Investing is deferring spending in the hopes of a greater return. Get a dollar today, by whatever means, and you can either exchange that dollar for something or hold onto it. In that way, investing is analogous to saving.
In fact, it doesn't hurt to think of "save" and "invest" as synonyms. Put your money in a hollowed-out tomato can instead of spending it on something perishable, and you're investing. Granted, you're investing with a zero rate of return, but you're still investing, instead of consuming. (Also, in the event that the currency deflates, you'll actually enjoy a real rate of return, when you store your money in said tomato can, instead of investing in the conventional way.)
There's no general-purpose form of investing for everyone, just as we all require different diets, or different wardrobes, depending on where we are and what we're trying to achieve. The Upper West Side society matron can probably forgo a pair of steel-toed work boots, just like she doesn't need a portfolio heavy on growth-company stocks. The 22-year old unmarried coal miner could get tremendous use out of both.
What Happens Next?When you contact an investment professional, the first thing you'll be asked is, "What are your objectives?" Most people will respond to that by sitting there agape and trying to formulate an answer, without betraying their naivet. To be fair, it's a complicated and overarching question that you need to have spent time figuring out the answer to, long before someone asks you.
Before you meet with an investment professional, step back. Schedule the meeting at least a couple of weeks down the road, because you're going to need to do your homework with regard to answering the above question. You do that by asking yourself, and giving frank responses to, some other questions:
How's your financial situation right now? Your investment advisor is going to lay your financial life bare in ways you might find uncomfortable. That universal taboo about never discussing money? Money is all that investment advisors discuss.
If you're already drowning in consumer debt affixed to high interest rates, then you're not ready for formal investing yet. Say you have a $13,000 credit card balance that you're making minimum monthly payments on, on a card that charges 17.9% per annum. The best investment you can make at this point is living like a Paris underground dweller for as long as it takes to pay the debt off. Unless you know of some investment that can guarantee you an 18% return, and if you do, please tell us about it.
If you're paying your bills with room to spare, and are building a savings account balance every month without knowing what to do with it (a good problem to have), proceed.
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So You've Decided To Invest ...
