Investing Basics

If you aren’t investing your money, maybe you should be. Whether you’re 29 or 59, consider saving some of your hard-earned dollars for retirement or even the proverbial rainy day. Your future self will thank you.

While it might be tempting to imitate your eccentric uncle and stash money in cubbyholes around the house, you still run the risk of spending the money, losing it, or forgetting where you hid it altogether. Investing also offers a payback in the form of interest earned on money saved, something you’re not going to get from money hidden under the floorboards.

Read on for ideas on how you can make your money make money for you.

Many employers offer a 401(k) savings plan, and some even match your contribution. The money comes out of your paycheck before taxes, meaning you won’t miss it in your regular paycheck. If your employer offers to match your contribution (often up to 6% of your paycheck), you’re turning down free money if you don’t enroll. The beauty of these plans is that you can forget about them because you can’t access the money until retirement (without paying a penalty). 

Certificates of deposit and savings accounts tend to be safe investments with modest returns. If you’re saving to make a large purchase in a few years, consider a high-yield savings account in an online bank, which usually offers a higher interest rate than brick and mortar banks. You’ll still be able to access your money when you need it. CDs, on the other hand, tie up your funds for a set period. You’ll make more money in interest, but you won’t be able to withdraw the money without paying a penalty before the CD matures. On the other hand, you won’t be able to use the money on frivolous purchases either!

If you’re 25 years old, you can afford to lose money more than someone who is 75 and no longer earning a regular paycheck. Stocks typically have higher yields than savings accounts or bonds, but they also run the risk of plummeting on a bad headline or earnings report. Patience is key. If you notice your stock portfolio’s value is dropping, resist the urge to cash it in and stash it in a mattress. Most stocks bounce back over time.

A good financial advisor or accountant can help you determine the safest and most productive plan for your investment funds. They may suggest mutual funds, a combination of stocks that balance each other out if one sector of the economy is booming while another is failing. They can also advise you on the hot stock your brother-in-law talks about before you put all your financial eggs in one basket. 

It’s never too late—or too early—to start investing your money. Even if you think you’re strapped for cash, those daily coffee runs and dinners out could amount to a sizeable investment start in just a few months. Consider cutting back on frills and investing the money instead. Your younger self may grumble a bit over caffeine withdrawal, but your older self will enjoy the financial freedom that comes from wise investments.