Investment

What is Investing?

Investing is the act of putting money or resources into an asset or venture with the expectation of generating profit or returns over time. Investments grow over time with compounding interest. There are different types of investment accounts and types of investments.

The key to building wealth is to start investing as soon as you can and let time do it's job- let the compounding interest grow your wealth.

Fun Facts:

  • According to a Gallup Poll, the average age investors started saving is 29 years old. And only 26% of people start investing before the age of 25.
  • Around 33% of millionaires never earned more than $100,000 as a household in a single working year, according to Chris Hogan's study, and only 31% averaged $100,000 a year.

What is a Tax-Advantaged Account?

  • Roth Accounts- the money you contribute and the earnings it generates can be withdrawn tax-free after you reach a certain age and meet certain requirements because the contributions have been taxed already.
  • Traditional Accounts- your contributions are deposited before being taxed and require you to pay taxes on the money you withdraw during retirement.

Types of Accounts

Account Tax Advantaged Require earned income offered by employers Annual contribution limit
Individual Retirement Account (IrA)

yes

yes

 no $6,500 (2023)
401K

yes

yes

(private & for profit)

 $22,500 (2023)
403B

yes

yes

 (tax exempt &non profit) $22,500 (2023)
457

yes

yes

 (tax exempt &non profit) $22,500 (2023)
Taxable no no no no

Types of Investments

This list consists of investments that are backed by hard assets, which means the investment is supported by tangible, physical assets such as properties, real estate, commodities, or other tangible items of value.

Investment Type What It Is
Stocks
  • Certificates representing ownership in corporations (you own a little bit of the company)
  • Stocks pay dividends when company is profitable
  • Value can increase and decrease (this is where the risk comes from)
Bonds
  • Represents being a creditor to a company (you lend money to an organization, they promise to pay back with interest)
  • Manage risk by doing higher quality bonds, because they are issued by companies and businesses with strong credit ratings.
  • Have predetermined maturity/repayment date and interest rate
Mutual Fund
  • Pools of money from many investors to invest in various securities such as stocks, bonds, and other assets (like a value pack of investments)
  • They are generally considered safer investments because they offer diversification and are managed by professional portfolio manager (doesn’t mean risk free)

ETF

Exchange Traded Fund
  • Can buy and sell throughout the day like a stock
  • Pooled investment opportunities that typically include baskets of mainly stocks, bonds, and other assets grouped based on specific fund objectives (like a mutual fund)
Annuity
  • Offered by insurance companies and very complicated
  • Turns a sum of money into a stream of payments
  • Often used in conjunction with retirement savings account

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Another place with helpful investing information: Investopedia.com