I have always been overwhelmed by the world of finance and economics. Once, when I was filling out a withdrawal form at the bank, I accidentally wrote down my library card number instead of my bank account.
Fortunately, I seem to be the only one in my family without much financial understanding. My parents and brother have all either studied or been employed in the finance industry (or both), so I’m usually covered when I have financial questions.
And I’m learning. I can track my monthly expenses, follow a budget, and generally access my bank account without confusing it with the library. But my biggest financial confusion doesn’t involve my checking account or taxes (as confusing as those may be). I have the hardest time understanding the world of investing.
The basics of investing
I tried Googling “Why do we invest?” and found some answers. But I also got confused. Thankfully, my dad stepped in to help.
An investor buys a certain number of shares of stock in a specific company. The price of these shares goes up or down due to public opinion of the company, the company’s performance, its competition and other factors. An investor gains or loses money when they sell their shares for more or less, respectively, than they paid for them. Companies use that invested money to grow and expand their business — which in turn affects the public opinion and other stock market factors that increase or decrease their prices.
Of course, this is an uber-simplified explanation of the highly complex world of investing, but I definitely have a better mental picture of the process now.
But why would I want to invest?
We no longer live in a world dominated by agrarian economies or simple banks, but in a society that has inflation and retirement costs and even cyber-currencies (which I am nowhere close to understanding).
As Christians and responsible citizens, we know that we should reasonably prepare for our future needs and not assume that other people will foot the bill for our expenses. In our modern financial society, being well prepared for the future looks different than it did before banks and Wall Street.
In the old days, perhaps just saving money for the future was enough. But inflation means that any money we set aside now will be worth less later. Investing is how we make our money grow so we will have it when we need it in the future (for retirement or other needs). And our 20s and 30s are the best years for us to set money aside for investing, since our living expenses are lower and we have more decades of life ahead of us to continue earning and investing.
So, if you’ve decided to invest, here is how to get started.
Set your investing money aside. Once you’ve decided to invest, you need to determine how much money you have that could be invested. You don’t want to invest money you need for next month’s groceries or rent, and keep in mind any vacation or other expenses you’ll have soon, too.
Decide what you want. Narrow down your options and do some research. Do you want to buy stocks? Bonds? Mutual funds? Mutual funds are groups of stocks – so instead of owning one share in one company, you would own partial shares in multiple companies. This lessens the risk of losing money if one of the companies bottoms out.
Find someone to guide you. This is where financial planners or brokers are very helpful. They aren’t necessary, and some can be expensive, but they can guide you through the process of investing. Also, checking with friends and relatives for their experiences and recommendations is a good idea.
Keep an eye on the progress. This is the part I’m really bad about (not that I’m great at the rest of it). Once you buy a stock or mutual fund, you should receive information periodically on how your investment is doing. You will probably find ways to tweak your investment based on its performance.
More than the money
After my dad explained the investing process, I asked him why he thought young adults should invest, and he mentioned a lot more than the personal financial benefits.
“Investing is a chance for you to invest in a company that you think is going to grow your money, provide jobs, and keep the economy growing,” he told me. America has a capitalist economy, banking (get it?) on the expectation that its citizens will participate. As we invest our money in companies, business can grow and jobs can be created.
Investing is confusing, yes, and can be risky. But we gain so much by stepping into these new experiences, and our society and economy are improved by our participation.
So keep experimenting. Keep learning. And if you’re still a little confused (like me), take a deep breath. Start small and see what happens.
Copyright 2019 Lauren Dunn. All rights reserved.