The aim of investing is to make the most of your financial resources so that you can build long-term wealth. Investing involves putting your money into financial instruments—such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs)—with the goal of increasing their value over time. The earlier you begin, the more time your investments have to grow through compounding.
Gaining an understanding of how to invest wisely should be part of your financial literacy journey. It’s important to recognize that there isn't a one-size-fits-all approach to investing—it depends on several personal factors, including:
Every investment carries some level of risk, and understanding the risk-return tradeoff is essential. For example, individuals approaching retirement may prioritize safer, lower-risk investments. Younger investors, on the other hand, often take on higher-risk options with the potential for greater long-term returns.
Since deposits held at a bank or credit union are federally insured, most savings accounts are considered very low risk investments. For example, the only the risk associated with a certificate of deposit is the early withdrawal penalty, which is usually stated as a number of days earned interest. Before buying a certificate, ask what the early withdrawal penalty is (e.g., 180 days earned interest) to be sure you’re comfortable locking up your funds for at least this amount of time.
One of the best ways to manage investment risk is through diversification. This means spreading your money across different types of assets (like stocks, bonds, and real estate) and industries. A well-diversified portfolio can protect your investments from market volatility and minimize the impact of poor performance in any single area.
Your age, income level, and goals will help shape your ideal investment approach. The good news? You don’t need a lot of money—or a financial degree—to begin.
A good place to get started is contributing to your employer-sponsored retirement plan (e.g., 401K), if available. 401K plans usually offer index funds which are designed for your target retirement date. If you don’t feel confident making other investment choices, an index fund may be a solid option.
With the number of options available, investing is more accessible than ever. Remember, starting early in adulthood can pay off in a big way. With the right knowledge and tools, you can build a portfolio that grows alongside your life and financial goals.
Answers to your investment questions.