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Investing your money can be a great way to earn extra income without having to pick up another job, however, navigating the world of finance as a beginner can be intimidating. If you feel like you don’t understand much about investing, don’t let that discourage you. There are a lot of investment options available that are perfect for beginners or individuals who don’t have the time right now to learn a lot about the world of investing.
Before making any decision about investing, you want to at least learn the basics and determine which option would be best for you. The first thing you’re going to want to do is to learn about the available investing tools you can utilize so that you can choose the right one. Here are some of the most commonly used investment ideas for people who are just starting out.
High-yield Savings Accounts
A high-yield savings account is a type of savings account that pays a much higher interest than regular savings accounts. With a high-yield account, individuals usually earn 20 to 25 times the national average for a standard savings account. For example, if you are keeping $5,000 in savings, the national average earned interest is 0.10 percent, meaning that you would earn just over $5 in the whole year. Instead, if you put that $5,000 into a high-yield savings account that earns 2 percent, you would make $100 in a year.
Certificates of Deposit (CDs)
A certificate of deposit, also called a CD, is a way to earn interest on a sum of money over an extended period of time. This is different from a savings account because you cannot access the money until a certain period of time is up or you risk penalty fees and loss of interest earned. CDs often have higher interest rates than regular savings accounts, which makes them appealing despite the lack of liquidity you’ll have with your savings.
If you are interested in opening a CD, you’ll definitely want to do your homework first, because there is a wide range of offers available. For example, an online bank or credit union can pay nearly 3 to 5 times the national average. A brick-and-mortar bank may seem like a simpler option, but it can actually be less convenient. There are also really great rates offered with some special promotions that last a less common amount of time, such as 13 or 21 months in comparison to the usual increments of three, six, or twelve months.
Workplace Retirement Plans
A 401K and other work-related retirement plans can be one of the easiest ways to begin investing, and there are lots of incentives that will benefit you now and down the road. A majority of employers offer to match whatever portion of your check you agree to save for retirement. Therefore, by opting out of this option you are basically turning down free money. Even if you can only afford to put a small amount into a retirement plan each month, it will be doubled if your employer offers this as an option.
A workplace savings tool is a good option as well because it is done automatically, so you are continuously and consistently adding to your retirement savings over time. This way, you don’t have the option of spending that money irresponsibly because it is automatically taken out of each of your paychecks.
A mutual fund is a combination of stocks, bonds, money market instruments, and other assets that form an investment portfolio. These are great options for small or beginner investors to have access to professionally managed portfolios. This allows for more diversified investments and gives more security to your investment. However, mutual funds may charge annual fees, expense ratios, or commissions which can put a dent in your overall return. Additionally, many employer-sponsored retirement plans invest in mutual funds. ]
About the author
Roni Davis is a writer, blogger, and legal assistant operating out of the greater Philadelphia area. She writes for a chapter 13 bankruptcy lawyer in Philadelphia.