Take Control of Your Finances: Part Three

Amplify Credit UnionDecember 3, 2021

Reviewed By: Amplify

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In part one of our “Take Control of Your Finances” series, we talked about creating a financial plan that would allow you to get a clear picture of your financial situation, build a budget, set financial goals, and create a savings strategy. In part two, we discussed managing credit cards, getting out of debt, and improving your credit score.

If you have a savings plan in place and a strategy to pay debt down, you’re ready to move on to the next step—investing!

In part three of this series, we’re going to break down the basics of investing, including how, where, and when you should start to invest.

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Schedule an Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

What is investing?

If you’ve ever heard the term, “Let your money work for you”, it was probably in reference to investing.

Indeed, investing is a way to increase the amount of money you have— without having to do any “work” to earn it. When you invest, you essentially purchase a financial product with the hopes of selling it at a higher price at a later date or receiving some sort of guaranteed return, like interest.

Investing is different from putting your money in a savings account. In a savings account, your money sits safe and there is very little risk. However, there is also very little reward for you keeping it in there. Interest rates on savings accounts are typically pretty low, with account holders maybe earning an extra few dollars per year. The return on investments is usually much higher, helping you grow your money faster.

How to Start Investing

Once you’re ready to start investing, it’s usually as easy as opening an account at a credit, union, bank, or financial services institution. Which one you go to will depend on where you want to invest your money.

Where to Start Investing

To determine where you should start investing your money, you need to consider a few things:

  • Your investment goals: What are you saving for? Retirement, a child’s education, supplemental income, or something else?
  • Your time horizon: This relates more to retirement or college savings, but the concept is simple. if you have time to let the investment make money, you have more opportunity to take risks—like investing in the stock market—because you have time to make up for any losses you might experience. As you reach the date you need the funds, however, your portfolio will need to be adjusted to minimize the risk of losing money.
  • Your risk tolerance: Everyone’s risk tolerance is different, and it can change the way you invest. Not everyone is comfortable with riskier investments—they might come with a higher monetary reward, but the risk of loss may also provoke some significant anxiety.

We’ve broken down investment vehicles to give you a broader picture of what investing might look for you.

Investment Vehicles

You have many options when it comes to investing your cash. Experts recommend diversifying your investments—in other words, spreading the money you’re investing over a variety of different investment types. Diversification is a great way to balance investment risk and potential earnings.

Type of InvestmentWhat It IsWhere to Find This Investment
StocksStocks are ownership shares, also known as equity shares, of a corporation. When you purchase a stock, you buy a small sliver of ownership.How well you do in a stock depends on how well the company is doing, overall market conditions, and other factors.Stocks are one of the riskiest investments since they can be volatile. Experts advise against investing too much in one stock. Instead, you should spread your money out over many companies.The stock market will also come into play in several of the other investment options we mention.You can invest in the stock market by opening a brokerage account.You can choose the companies that are right for you by doing some research online or speaking to a financial advisor.
BondsBonds are essentially an IOU from the government or a corporation. When you purchase a bond, you lend that entity money with the promise of repayment at a set later date— with interest.Bonds can take a while to reach maturity and typically don’t have a high rate of return. It is, however, far less risky than the stock market.Like stocks, bonds also play a role in other types of investments, like mutual funds.Bonds from the Treasury can be purchased directly online through TreasuryDirect.gov or a bank, broker, or dealer.Corporate bonds can be purchased through a broker.
Mutual FundsA mutual fund is a type of investment that pools investors’ money and spreads it across many types of vehicles like stocks, bonds, and more.It’s an easy way to diversify your investments and gives you an opportunity to cater your portfolio to your objectives.Mutual funds typically have higher annual fees than other types of investments, which may eat into earnings.You can invest in a mutual fund by going directly to the companies that create the fund or brokers like Vanguard, Fidelity, Merrill Edge, etc.
Index FundsAn index fund is designed to mimic the composition and performance of a financial market index (such as the S&P 500) with a combination of stocks and bonds. A market index is essentially a metric that tracks the performance of a group of stocks.Instead of actively picking and trading stocks, index funds take the route of passive investing and follow the general trends of the market.Index funds can be purchased through a mutual fund company or a brokerage.
Certificate of DepositsCertificates of Deposit (CDs) is a financial product that earns interest on a lump-sum deposit that is left in the account for a fixed period of time.CDs don’t carry many risks; there is a non-volatile, guaranteed rate of return.CDs can be purchased at a credit union or bank.
AnnuitiesAnnuities are typically used as a source of income in retirement. Here, you’ll pay an insurance company a lump sum or series of payments in exchange for regular disbursements beginning immediately or sometime in the future.Annuities can be purchased from certain insurance companies, independent brokers, banks, and other financial groups.
Real EstateInvesting in real estate doesn’t necessarily mean buying and flipping houses. It can also mean investing in real estate investment trusts.Real estate investment trusts (REITs) own, operate, and finance income-producing properties. Investors can purchase publicly traded stocks in these trusts.Many real estate investment trusts are publicly traded and shares can be purchased through a broker, just like stocks.
401(k)A 401(k) is a private, employer-sponsored retirement account that you can contribute to straight from your paycheck. The 401(k) equivalent for nonprofit employees is a 403(b), and the equivalent for government employees is a 457 plan.Consult with your employer to find out more about their 401(k) plan. If your employer doesn’t offer one or you’re self-employed, you may be able to open an individual 401(k).
IRAAn Individual Retirement Account is a specialized investment account that allows you to save and grow your money for retirement. IRAs generally let you choose the types of securities you want, allowing you to craft an account that matches your risk tolerance and goals.There are two main types of IRAs— traditional and Roth. Though they serve the same function, the money is taxed differently.IRAs can be opened at many credit unions, banks, and brokerages.

Keep in mind that this isn’t an exhaustive list of investment types. Speak to a financial advisor to learn about more options.

When to Start Investing

It’s always best to start investing as soon as you can. The longer your money sits in investments, the more it can grow, thanks to compounding. Most investments compound, which means that the asset generates interest, the interest adds to the total amount invested, and the overall earnings grow exponentially over time.

However, most experts agree that investing should come after you’ve established an emergency fund and paid off any high-interest debt. After that, you’re free to start investing. While doing research and exploring your options is a great way to familiarize yourself with basic principles, talking to a financial advisor can take your steps toward investing to the next level.

A professional can work with you to create an investment plan based on your financial situation, goals, and risk tolerance. Remember— your money can do some work for you if you put it in the right places!

*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer Member FINRA/SIPC and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2018.

Talk to a CFS Financial Advisor

Want to take your retirement plans to the next level? Schedule an Amplify Wealth Management appointment with our colleagues at CUSO Financial Services (CFS).

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Amplify Credit Union

For over 50 years, the content team at Amplify Credit Union has created educational content to help its members plan for and accomplish their financial goals. From retirement advice to lending best practices, the marketing team at Amplify works alongside our in-house experts to provide practical banking advice for our Central Texas community.