Choosing the Right Investment Fund

The best time to start investing is when you first enter the workforce. Whether you’re putting money away for your children’s college or for your retirement, investing your money into some kind of fund is a great idea to consider. Contributing the smallest amount you can will still be a huge benefit for you down the line. There are many different options for putting aside money for the future. Here’s a brief explanation of a few of your options.

Roth IRA

Roth accounts are investment options where you can put up to $5,500 per year. The money that is put in is post tax, meaning you pay taxes on the money entering the account, and the money that exits the account is not taxed if you withdraw it after the age of 59. You may withdraw the money before you’ve reached that age, but taxes and penalties will be applied to the money you take out. The thing that makes this type of investment so great is that it works by using compounding interest. This means that the money you put in receives interest and then the new balance (the original amount plus the interest accrued) also receives interest. So even if you stop contributing to the account your money will continue to grow until you take it out.

401k

This type of investment account is often offered to you through your work but you can also set one up on your own. You can take it with you too if you move companies. The benefit of having a 401k though work is that they sometimes match your contributions, giving you more money. When used through your company they normally take the amount you want to contribute out of your pay check and you don’t have to pay income taxes on that money until after you retire and take it out. If you take the money out before the age of 60 you may be penalized by having to pay another 10% in taxes.

Stocks, Bonds, and, Mutual Funds

With stocks, you get ownership of stakes in a company. Bonds are when you loan a company money and they pay you back a higher lump sum at a later agreed upon time. When investing in the stock market, you are in control of where your money goes. You can choose which shares to buy and which to sell. You need to keep an eye out for changes but you have total control of your money. Mutual funds still invest in stocks and bonds but you let someone else manage it; meaning they choose which stocks and bonds to invest your money into. This is normally done by a financial advisor or fund manager.

Online banking

This is a newer and probably the simplest type of investment. It’s basically an online savings account that you put your money in and they give you a higher interest rate for leaving your money in it. They give you an interest rate of around 2.25% instead of your normal banks that give you around .10%. The only disadvantage of this online savings account is that it takes up to 3 business days to access your money, whereas a normal bank you can access it instantly. However, some online banking companies offer checking accounts with a slightly lower interest rate, but you can then access your money quickly and easily. Currently Ally Bank is the best online banking option.

Investing your money does not have to be risky. You can invest as much or as little as you’d like. If you invest a small amount of money each month, treating it just like a bill that has to be paid, you will most likely not miss that money and you will be able to have a more financially secure future.