Understanding investing

What are your reasons to invest?

For many, the concept of investing seems overwhelming and complicated. Yet when you break it down, there are three reasons behind investing and they are quite basic.

The first is financial security. Many people believe by investing their money they will achieve a higher return if they are willing to take on more risk. As the saying goes, “The higher the risk, the greater the return” and if done wisely and over time, financial security can be achieved through investing.

A second reason for investing is retirement. Most people are not interested in working their whole life but want the financial freedom to enjoy life. If you are one of them, you can put your money to work for you. By participating in your company retirement plan, creating a retirement plan if your company does not offer one and investing wisely at a young age (or any age) it is possible to obtain enough wealth to retire earlier in life and enjoy your longevity without having to rely on an employer.

The third reason people invest is to reach their financial goals. Maybe your goal is to buy a new car or house, to take a vacation or send a child to college. Whether your goal is short-term (less than 2 years) or long-term (more than 5 years), a smart way to achieve it is through investing; putting your assets to work for you. Not all investments have to be long-term and by making smart, educated investments you can use it to accomplish your short-term goals.

Do your homework before you make any investment decisions. There is a lot of financial jargon to sift through and you always want to understand the investment product before you invest. Below is a general listing of the vast array of investment products available:

  1. Stocks
  2. Stock Mutual Funds
  3. Bonds
  4. Bond Mutual Funds
  5. Lifecycle Funds
  6. Exchange-Traded Funds
  7. Certificate of Deposit
  8. Money Market Funds
  9. Annuities                

Michigan State University Extension offers financial management and home ownership education classes. For more information, visit MIMoneyHealth.org.

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