Essentials of Investing
Here are some of the key concepts you should understand before you start investing.
When investing, accounts earn compound interest, meaning the combined value of your principal amount and your accrued interest earns additional interest. Learn more about compound interest on Investopedia.
Compound interest is important because, compared to simple interest, it can give you much greater returns over an extended period of time. The graph below demonstrates two different accounts: one earning simple interest and one earning compound interest with the same principal deposit.
The combination of compound interest and time can lead to a greater return in your wallet later in your life. Even if you only have a small amount of discretionary income, investing early can be one of the most rewarding financial decisions you ever make.
There is no shortage of theories from professional experts on the best way to invest your money, and countless sources of information explaining the mechanics of markets and how they function. There is a reason why so many people are intimidated by this topic. To get you started, we’re going to explain the concepts that are most relevant to you while you’re young and provide you with the tools to learn more when you’re ready.
Investing can happen in a variety of ways, but at this point, you should have a foundational understanding of stocks and bonds. It takes a lot of time and effort to individually seek out stocks and bonds, also known as active investing. Instead, you may choose to passively invest, by using investment vehicles that do the work for you, like buying into a mutual fund or exchange-traded fund.
