Take heed from Warren Buffett’s famous quote:
“Rule number one: Don’t lose money.
Rule number two: Don’t forget rule number one.”
Whether you are learning how to invest on your own, with a finance professional, via robo-advisors, or for starting your retirement options, you should have a basic understanding of the financial markets and your options.
The interest you earn from these accounts will likely not keep track with inflation. The risk/reward profile for cash-equivalent securities, also known as money markets, is low relative compared to bonds and stocks. These bank accounts also offer certificates of deposits (CDs) which can be desirable places to be when inflation rates rise to mid single digits or higher.
The risk/reward is different depending on where you invest but tend to be higher when you put your money in stocks. That is, the greater the risk, the greater the rewards. Investing in stocks are not federally insured, you can lose your principal investment, and/or lose your dividend income if your shares offer dividends but the company suspends payments.
Market volatility happens regularly
To get a better sense of the market volatility there have eleven historic bear markets (market declines of 20% or more) from the Great Depression (early 1930s) to the Great Recession (2008-2009).
Stock Market Game. The college students I teach in my finance classes are required to play the stock market game with $1,000,000 (don’t worry! they have to give the money at the end of the term) and create their own stock portfolios. I use the free stock market game on marketwatch.com website.
How you invest will depend on many factors:
– will you seek a finance professional such as an advisor or robo-advisor? There may be minimum amounts required for financial advisor, and just like all advisors, they need to be thoroughly researched for your comfort
Do you plan to be an active investor? If you are doing your own work, make sure you have the time to invest to really understand the big picture and recognize that what the Fed says could impact your stocks along with many other external factors along with following the companies you invested in.
Investment Risks can occur with the companies you have invested and may reflect some actual events that happen to companies that are different than what the market expects or what the analysts who follow these companies expect or what the companies themselves expect.
if you are managing your own stocks, register for investor relations information, find out when your companies are reporting their quarterly earnings and listen to a conference or read the transcript of conference call, visit various websites with company information and investor comments.