Is it Really Worth Investing Small Amounts of Money?

Most of us realize it is smart to invest money. However, some people believe that unless they can invest large amounts of money it isn’t worth bothering in the first place.

So, is this true? Should you forget all about investing anything unless you happen to have lots of cash you can sink into an investment of some kind?

Lots of small equals big

Okay so that isn’t a great sentence. But it does illustrate how important it is to understand there is still power in saving small amounts of money. All those small amounts eventually add up to a somewhat larger one, and when that happens you might find you are left with a lot more cash than you had before.

You can also take advantage of forming a good money saving habit. Even if you can only save a dollar in a jar every few days, you’re forming a good habit that will stay with you for a long time to come. Not only will this lead you to save lots of smaller amounts, it also means you’ll make good decisions if you ever find yourself with a larger sum of money to invest.

The power of compound interest

You’ve probably heard of this before but it is worth looking into in more detail. When you save money you get interest paid on it. It doesn’t matter what the specific interest rate is in terms of this example – all that matters is that you get that money.

Over time you’ll get interest paid on all the money you manage to put away. However, you will also get interest paid on the interest you’ve received over time.

This means you could put away $100 and get, say, $2 interest on it in a year. If everything stays the same for year two, you will get interest paid on $102 in the second year. This will be the original $100 plus the interest from the previous year. If you put in more cash you’ll get interest paid on that as well. The following year you’ll again benefit from compound interest on whatever you had the previous year.

As you can see, it really is worth investing small amounts of money, even if you’re only using a basic savings account. It’s not just the benefit of saving the cash that you’re getting – you’re getting more cash saved up through compound interest plus the perk of a good healthy habit as well. These aspects are perhaps worth even more than putting away the money in the first place, and you’ll definitely benefit from them in the long term.

So if you thought it wasn’t worth putting anything away, you should think again. Your life might change for the better if you focus on the action rather than the amount you are saving. In the end, the total sum saved might surprise you anyway, so try it today and get a good habit going.

What Should You Do if You Simply Cannot Save for the Future?

The focus of this blog is to start investing money: sinking it into one or more investments so you have a nest egg to fall back on in the future.

However, all this relies on the fact you have at least some surplus cash to play with. What do you do if this isn’t the case yet you still want to invest for the future – or at least save something in case you need some cash in an emergency?

Having the ability to identify fruitful investing options, and at the same time know when and how to save the proper amount, is a skill most professionals need time to hone.  Due to the internet this special education is now more available than ever, with degrees like masters in accounting online helping people understand the importance of financial acumen and the ability to operate in the profession

Paring things down to the basics

This is step one, if you will. We all have a lifestyle we are used to. Sometimes we may need to strip this back so we can free up more cash for one reason or another. You can do this here if you haven’t already done so. Many of us could strip back our outgoings to the absolute basics if we needed to – and in some instances it is possible to strip things back a little further. You only need to read some of the inspiring blogs and articles that focus on providing tips and hints on eating on a dollar a day and other subjects to see how true this is.

Have you pared things back to the basics yet or do you still have more work to do? Re-evaluate your life in every area and see whether you can free up some cash so you are able to set some savings aside, even if you cannot invest anything else.

Things change

Many people go through periods in their lives when saving money is not an option. If, even after going through the stage above, you find you can’t free up any spare cash, don’t worry. It doesn’t mean you can’t still read and learn about saving for the future. You may just come across a way of doing it that would work for you. Indeed, you may discover a new method for making a little extra cash to help you along the way.

The moral of this story is to make sure you are always open to the idea of saving money. Even if you can only save a dollar or two every now and then, it instills in you a mindset that will help you through the hardest financial times. It will also lead you towards a brighter financial future, and this alone can be a positive experience when you are trying to save money for some reason.

The only way you will never save money for the future is if you decide it cannot be done. Even if this is true at present, it’s not a good idea to succumb to this mindset – it may just follow you around for longer than you’d like. As you can see, if you take the right stance you might just change your fortunes for the better. If you can do that, you could start saving money for the future sooner than you might at first think was possible.

The Importance of Saving for Short Term Goals

We hear a lot about investing for the long term: for events such as our retirement in several decades from now, for example. However, we don’t tend to hear as much about short term investments and yet these can be just as important in many circumstances.

These investments are ideal when you have a short term goal you want to hit. This could be a goal that requires you to have a specific sum of money to achieve it, or it could simply be a savings goal.

Understanding short term goals

Here are some examples of short term goals you could go for, and how they factor in when we’re thinking about money.

  • A 6 month goal to pay off an outstanding credit card debt
  • A 3 month goal to save up for an online course to provide you with an additional qualification to help further your career
  • A 6 month goal to save $500

As you can see, it is enough simply to want to save a particular sum of money for a particular length of time. You don’t have to have something in mind to spend it on, or even a bill or debt you want to clear. Simply wanting to save is enough of a goal for anyone to aim for – and if you are successful in saving and investing that money for the short term, you’ll find it easier to do so for the long term as well.

Why are short term savings goals important?

We’ve already discovered one reason – namely that they can get you in the mood for saving for the long term as well. But there are other good reasons. For example they can help you achieve long term goals as well.

Take the above example focusing on the ideal of saving up for 3 months to invest in an online course to achieve another qualification. If you were to achieve this goal, you could complete your online course. You’d then stand a better chance of getting a better paid job which would allow you to save more money in the future as well. This is one of the best examples you could consider in this situation, as it represents how easy it is to scale up a small goal into a much larger one.

So if you don’t already have any short term savings goals in place, why not think of one or two to achieve now? It could be as simple as not spending frivolously for the next week, to see how much you can save in the process. It could be a three month goal to help you save up to pay off a credit card debt. Whatever it is, it should be something you can achieve with a little hard work, and something that will give you a good payoff.

You might be surprised how much more positive you’ll feel about saving when you can achieve short term goals such as these.

Do You Know Enough to Be a Successful Stock Market Investor?

For many people the obvious route to take when thinking about investing is to head for the stock market. But is this really the wisest route for everyone?

There is certainly a lot of money to be made with stocks and shares. However there are significant losses that can be made too, especially if you don’t know what you are doing. Unfortunately some people are tempted by the potentially big gains available. This means they can end up investing money in shares that are not right for them.

So if you are considering investing in this way, here are some points worth bearing in mind before you do so.

Can you invest money you would be happy to lose?

This is the main point to bear in mind, even if you know little about anything else. Investing your life savings in stocks and shares is not a good move. If the stock market were to crash – and as we know it has happened before on more than one occasion – you could lose everything.

This is why it is wise to split your cash and invest it in a number of different ways. It spreads the risk you are taking as well.

Do you have an interest in the stock market?

You don’t need to know the ins and outs of how a car works in order to drive one. But when it comes to the stock market it does make sense to have a rough idea of how it works and what kinds of ups and downs you can expect. Otherwise there is a much higher chance of investing money in volatile stocks. There is also a higher chance of viewing the market through rose tinted glasses – seeing only the potential gains and not the potential losses.

Do you understand not all stocks are the same?

Here we simply mean that some are issued by big name companies we’re all familiar with – Coca Cola or Microsoft for example. Others are issued by small companies that are just starting out.

Everyone wants to invest in the next big global success. If you know what to pick you stand a chance of making a lot of money – just as you would have done if you had invested in Microsoft shares right at the very beginning. But picking future successes is very difficult to do – and best done with money you can lose if that’s what it takes. It is almost a form of gambling when you think about it.

While the breakout successes will achieve the highest returns, they are very few and far between. You are more likely to make gradual returns on a more stable stock from a well known company.

So you see you may not necessarily be the right person to invest in the stock market. It all depends on your level of knowledge, how much you are willing to invest and whether you can accept the ups and downs of this particular type of investment.

Start Investing Money June Carnival Roundup

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Got Credit Card Debt? Then Don’t Invest

As you’ll no doubt have noticed, the whole idea behind this website is to encourage and guide you in the process of investing money. But there are always caveats to this procedure. The main one is to note that debt should always be taken care of first. This is because most debt will have a higher rate of interest attached to it than you could ever hope to gain on an investment.

Should you clear all your debts before you start to invest money?

Not all of them, no. For instance a mortgage would not be included because most mortgages run over at least 25 years. You’d be waiting a long time to start any kind of investment at all if you were going to clear your mortgage first.

No, the kinds of debts we’re talking about here relate to credit card debt and store card debt. These will undoubtedly have much higher rates of interest than you would earn on your investments, so it makes sense to pay these off first.

Work out what debts you have

This is the most important step and also the first one you should take en route to clearing them. Write them all down and list the amounts you have in each case. For instance if you have three credit cards list all the balances and note down the rate of interest applicable to each one too.

The process of clearing them should work like this:

* Pay at least the minimum on each balance each month as requested
* Work out which credit card has the highest rate of interest
* Pay off as much of the most expensive credit card balance as you can each month
* Clear the most expensive balance first, then work on the others in turn

Note how much you spend on clearing those balances each month

The more you can put towards clearing your debts each month the better. But make a note of the cash you can devote towards this. This will help you figure out how much you can invest in other things in the future, once your debts are cleared.

The next step beyond your debts is to save enough for emergencies. Then you can get started investing properly in stocks, shares and other investment opportunities, depending on what you want to opt for.

It might seem counterintuitive to ditch any investment plans you might have in favor of going through the above steps. But the sooner you clear any debts like these that you have, the easier it will be to free up more cash to invest in the future. This will put you in a much better financial position, and you will be able to find out which investment options will be best for you as a result.

So take a fresh look at your finances now and see whether there are any debts you should be focusing on ahead of making those all important investments.

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How Much to Invest in Inflation-Protected Securities

If you are thinking about investing money, then you need to know upfront what amount you’ll be looking at getting back, right? Many people who invest casually or just invest to take care of things such as retirement fail to take the all-important issue of inflation into account when doing the math. This can be detrimental to an investment portfolio, however, and understanding how inflation will affect your bottom line decades down the road is imperative to maximizing how hard your money will work for you.

Understanding Inflation-Protected Securities

Inflation-protected securities (IPS) are a great way to keep your money growth outpacing inflation, but to use them correctly, you fist need to grasp what they are. A standard-issue nominal bond has a principal, interest, and a guaranteed payout that you can calculate at maturity. The problem with investing in these over the long haul is you will have no idea what the rate of inflation will be on the date your bond matures, so you run a serious risk.

On the other hand, an inflation-protected security works in a similar manner as a bond, but the IPS accrues interest in two separate parts. First, the principal amount accrues along with inflation, and then the entire amount is paid when the IPS hits its maturity date. The actual coupon payment is made based on a real rate of return, so even though the IPS coupon is initially lower than a nominal bond, it’s paid out on both the principal and the interest that has accrued since it was originally purchased.

Should You Invest Heavily in IPS?

Quite a few different financial advisors think that investing in IPS qualifies as fixed income, but it’s not the case. In truth, these investment vehicles are their very own class of securities. You can’t really compare IPS investments to regular fixed income or equities because it just doesn’t make sense.

That’s precisely the reason that IPS make great additions to a portfolio for the sake of diversification. Of course, no one would want to invest in IPSs as a major chuck of their investment holdings because of the unpredictable nature of the possible returns, so investing in IPSs sparingly is the best way to diversify.

The reason that these are a fantastic way to round out your portfolio is that the rate of inflation is unpredictable, but when IPSs fluctuate in tandem with the rate of inflation, you won’t lose money as you would with a fixed investment of a similar nature. Fixed investments will earn the same rate of return, so the potential for real profits is not as secure as it is with their IPS counterparts. Moreover, since sovereign governments issue these bonds, there’s very little risk, so you can invest your money with confidence. Overall, it’s a good idea to add IPS coupons to your holdings to spread your money as far as possible to maximize your returns.

Start Investing Money April Carnival Roundup

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The Average Returns to Expect on Mutual Funds

When you are deciding on a vehicle for investing your money, mutual funds may come up in conversation more often than not. Because the risk is spread out, the investment is perceived as safer than gambling on individual stocks. It’s also much more lucrative than squirreling away your hard-earned dollars in a low-interest-bearing savings account. If you use mutual funds as a long-term investment strategy, you can earn returns of up to 12%. However, it’s important to choose the right fund and watch it closely, because if you invest in a loser, you may wind up earning far less in interest.

Consistent Investment Strategy

The single best way to construct a safe, diversified investment portfolio is to make sure you pick a mutual fund with a manager that invests in the same things consistently. You also need to check on the manager’s investing track record. If your fund is designed for investment in particular classes of stocks, then you need to follow up to ensure that the manager is indeed sticking to the plan. If he doesn’t, then random picks and sporadic buying could jeopardize your long-term returns.

Pick a Winner

Sometimes the market as a whole is bad. Other times, the sector that your mutual fund owns stocks in may be having an off year. Neither case merits jumping ship. It’s better to weather economic dips and spikes such as these in favor of looking out for your long-term gains with a fund. On the other hand, if you have a mutual fund that lags behind similar funds substantially for more than one year, then you may have a problem. Keep a close eye on the fund, and be prepared to walk away if you think you may have a loser on your hands.

Watch the Management

Be aware of the fund manager’s activities at all times. Read your annual statements and check on the performance and the manger’s purchases occasionally. If management changes on you, then it may be time to keep a closer watch. You need to ensure that the new fund manager closely matches the old in investment choices if you fund has been doing well, otherwise you may be in store for a bumpy ride. Conversely, if your fund was tanking and management changes hands, give the new guy a shot before you decide to sell off.