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The world of investing can seem vast and overwhelming if you haven’t been a part of it before.
But if you take things one step at a time, you can make a plan that’ll get you started on the right path toward your financial goals.
First, it’s important to decide what those goals are. Maybe you want to save for retirement. Or college. Or scuba diving in Fiji. Or maybe you just want to save more in general.
Once you have those goalposts in mind, that’s what will determine the kind of account you should open. Think IRAs for retirement, 529s for college savings, and individual or joint accounts for general savings.
Once you’ve settled on an account type for your journey, it’s time to pack your bags—in other words, you’ll need to choose what kinds of investments to hold in your account to give your money the best chance to grow over time. There are three kinds of assets you can invest in: stocks, bonds, and cash. You can—and should—mix and match them. That’s called diversification, and it’s important for managing risk.
First, let’s talk about stocks. When you buy a stock, you own a piece of a company and its profits. Stocks have high growth potential, but with that comes high risk, so you’ll want to balance stock purchases out with less risky ones, like …
Bonds. Bonds are loans where you’re the creditor. You lend money to the bond issuer in exchange for repayment with interest by a certain date. We consider them moderate-risk investments.
And finally, there’s cash. Cash in your portfolio can preserve the value of your money when you’re saving for short-term goals. It carries the least risk when it comes to losing money, but there’s also not much potential for growth.
We think the best portfolios strike a balance between risk and reward. Now that you know about the different kinds of investments, you can get moving on those goals you set. And you can start asking yourself questions like: When do I want to retire? How soon do I want to be face-to-face with those sea turtles in Fiji? That will help you decide on a timeline for investing—and what your approach will be.
Still have questions about getting started with investing? We’re here to help. Visit us on the web at vanguard.com/gettingstarted.
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