INVESTING

Investing FAQs: Today’s Top Investing Questions

Investing can feel like an overwhelming concept and process for many people. As a financial education specialist, it’s my job to share important investment fundamentals, especially when a question is asked. This made me wonder: What were the top investing questions last year? According to Yahoo, the most-searched questions range from simple to slightly more complex. I will share those in this article, as well as a few that I’m frequently asked myself.

What is the difference between saving and investing?

I greatly appreciate this question, because it means people recognize there is a difference and are thinking about long-term strategies. Most importantly, saving is centered around additional fund safety, while investing incorporates calculated risk. Further key differences:

• Savings refers to money that you have access to if needed, like an emergency. In the financial industry, this is called “liquidity” and offers a more structured dividend return. On the other hand, investing your money leaves it to grow in an account type of your choosing, but you usually don’t have easy access to the funds if needed.
• Savings are more for short-term goals accomplished in one to two years. Meanwhile, investing may focus on dollars on a long-term timeline ranging from a few years to a few decades.

What kind of return on investment should I expect?

This question is one of the most important to help you understand that investing can be a long-term financial strategy. It’s quite understandable that someone would want to know what their potential gain could be after investing their hard-earned income. It might be easy to spot trends, but return on investment (ROI) is dependent on many factors, including:

• Diversification: This is the type of investment or asset you hold. The mix in your portfolio — or lack thereof — can boost or hinder your ROI.
• Length of investment: Markets can fluctuate hourly, but ROI is usually defined around the long-term growth of the market. Annually, professionals commonly quote an average return rate of 7-8%.

How should I start investing?

This is usually the first question I get as a financial education specialist. An important factor in investing is understanding your personality and financial situation. With that in mind, here are the top two options I recommend:

• You may start with a low-risk savings investment like a certificate of deposit (CD). This is one that I love to share with individuals who define themselves in a few different ways: risk-adverse individuals, those who struggle to save but don’t have significant debt or need credit repair, or people who find it difficult to understand compounding interest. A CD allows people to take on the “risk” of knowing where their money is but not having access to it. For individuals who struggle to save, this can help with building the habit of saving, because funds are not available during the certificate’s term. And for those who find compounding interest difficult to understand, it’s a real-time representation that they can view each month to see the process.
• Contributing to an employer-backed 401(k) or your personal Roth IRA can be a great place to start investing for someone who feels more confident with risk, understands compound interest, and is mindful of the fact that investing can be a long-term strategy. Through a helpful conversation with one of your employer’s human resources representatives, understanding how your 401(k) works should be a lot easier. If you’re not sure about IRAs, you can find plenty of investment companies to ask general questions, in addition to searching the internet.

What is the best investment app?

I get this question quite a bit! While I don’t personally have a favorite, there are plenty of apps out there to help people get started investing. Some apps round up your purchases for the change to be invested. Some apps allow you to pick and choose your stocks and bonds. Other apps allow you to invest early in startup companies. So, here’s what I share when people ask:

• The first step to selecting an app is to understand what your goal is. Depending on that, you can eliminate some apps that are not designed for the goal and narrow down the ones that are. For instance, if your goal is to help fund a startup, there are apps that may be able to help you do that. However, because most apps are not specifically designed for this, it may be more beneficial to search out platforms that are.
• Another tip to selecting an investment app is to acknowledge your level of understanding and ability to use the app effectively. Technology is moving at such a fast pace that it’s easy to get overwhelmed with all the apps and their functionality. If you find yourself feeling overwhelmed or struggling to understand a platform, it’s time to bring backup. You could ask a friend, co-worker, mentor or advisor for their suggestions, see if it fits your goals, or do more online research for learning.
• Some investment platforms offer investing simulations where you can practice using the platform without using your own real money to help with confidence and see if you like the platform and understand how it works.

The most important takeaway is that everyone has — or will have — questions about investing eventually. Asking questions will allow you to grow your knowledge and your financial wealth as well.

Sources:

https://www.schwab.com/learn/story/10-answers-to-common-investing-questions

https://finance.yahoo.com/news/answers-5-most-searched-investing-141643966.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAANOv8pklniKYwErtRbF_ZxIadLB2Xr9EerkW8ciXoJFqyTp5N9UGwW9H0ctR7SdSN03lytV2l90cWznLuUG--CCN9XXqFMYo9zi7m3QRH5LdyG-sw1apGejQv67IljeoT9IelRiwyAml1ZjPxNfppi1XPpAMSeJ8M9Y67ASnywud