Every time I see my parents’ friend, Ruby, she always tells me to study hard and to make sure I start putting money away for the future. She is frequently worried about the future because she is in her late 40s and did not start saving money until recently. In the past, she would pass on all of her money to her kids, with the hope that one day they will have high paying jobs so that they will be able to fully support her. But what if her kids don’t land these extravagant jobs? What if they choose to invest their money in other things besides giving their mother, Ruby, everything she wants in retirement? Family members should support each other if they can, but it’s also very important to build your own personal wealth because the future is always uncertain. I, for one, know that I want to build my wealth starting now, so that I will not have to worry when I am Ruby’s age. I’ve already spoken about how to save for present emergencies and how to be financially secure, so this last part of the series is going focus on how to start building wealth through investing, which will help you shape your future riches.
Investing is the act of putting money towards a specific venture with the hope of making money from a company’s profit, for the future. There are many types of investments that you put money in to start building your wealth. The most common types are stocks, bonds and mutual funds. Stocks are certificates that show that you own a small part of the company that you invest in. This allows you to vote at shareholders meetings and enables you to get any profits that the company gives out to its owners. These profits are normally known as dividends. However, stocks can be very unstable because their values change on a daily basis. Note that with stocks, profits are not certain. But if stocks are not for you and you want something less risky, then you might want to try investing in bonds (For more information on a bonds, click here). Bonds are simply IOU’s or a loan from a company or government with the promise to pay you back with fixed interest. The only downfall to bonds is that because there is little risk, there is little promise of generating a lot of money. You might be wondering if there is any way you could possibly invest in both. Well a mutual fund is just that, it is a collection of stocks and bonds. When you invest in a mutual fund, you put money together with other people and pay a professional to select investments for you.
Now that you have a basic understanding of investing and the common types of investments, maybe you can start planning for the future. Hopefully one day we will all find ourselves doing the things we really enjoy and living life to the fullest. But in order to get there we need to start building our wealth now and not later on in our lifetimes. How do you think you can start investing for your future?
For more places to "park your cash", view this infographic.