How to Choose an Investment for Your Goals

Photo By: Sabine Peters

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At The Financial Gym, we believe money is a tool. It’s a tool to help live the life you want. When you have various goals, you want to put money aside to reach them. But your savings accounts, even a high-yield savings account, may not get you the returns you need. 

That’s where investing can help turbocharge your money and prepare for your financial goals. But knowing how to start investing is hard. You may wonder what is a bond or how to invest in stocks the right way. Read on to learn more about how to start investing in your goals. 

Stocks: Best for the long haul

When people want to learn how to start investing they might think of stocks as part of the stock market. Stocks are a type of investment vehicle where you buy shares that act as part-ownership of a company. 

If you buy shares of Apple, for example, you’re essentially a part-owner. It’s always a good idea to look at the companies you already support as a consumer and consider buying shares of that company on the stock market. If you want to learn how to invest in stocks, you need to be clear about your strategy. Stocks can be volatile so you don’t want to have all your money in there. 

Investing in stocks is typically best for diversifying your portfolio, and how much of your money you put toward stocks depends on where you are in your investment journey. 

Bonds: Best for short-term goals

You might have heard about bonds but wonder really, what is a bond? Bonds are one of the safer investment vehicles you can choose. Buying a bond is essentially lending money to a government, municipality or corporation. In exchange for lending money, you’ll earn some interest on your investment on top of your initial investment when the bond matures. 

You’ll get interest from bonds at set intervals leading up to maturity. This can provide some income predictability and stability that other investment vehicles may not provide. Bonds can help offset other, riskier items in your investment portfolio like stocks.

Mutual funds: Best for medium-term goals 

There are many investment options to choose from. One of those options includes mutual funds. But what is a mutual fund? It’s when a group pools money together to invest in a variety of securities like stocks, bonds, etc. Investors end up buying shares of mutual funds. As an investor, you are part-owner of the mutual funds you buy. 

In many cases, mutual funds are managed by professional managers and also help with diversification. Mutual funds allow you to invest in a variety of industries. There are both actively managed funds run by professionals as well as passively managed funds that are not managed by professionals. 

Mutual funds are a good investment option for things like a down payment on a house or car. You know it’s going to be several years out but you want to consistently save and get a good return on your investment. Mutual funds may be a good option to get you there. 

Index funds: Best for retirement 

Index funds match the financial market index, such as the S&P 500, and offers a lot of diversity. Warren Buffet himself swears by index funds and historically they’ve done pretty well on the market. That’s why index funds are best for long-term goals like retirement. What do you want your retirement to look like? How much do you need to save to get there? Map out what you want and use index funds to get there. 

How to start investing 

If you want to learn how to start investing, take an inventory of what your financial goals are. Choose the right investment vehicle to support your goals and remember diversification is key. You can open an account with a brokerage like Vanguard, Fidelity, or with a smaller company like Robinhood, Stash or Acorns. Find the right tool for you. Check out our B.F.F. approved investment accounts here!

Still confused? We can help!  Get in touch with a financial coach today!