Intro to Investing - The Basics & Why

Hi everyone!

I just wanted to start off with a little disclaimer - I am still new to investing. Aside from what I learned in college, I've been actively learning about investing for the last year and started my investment journey 6 months ago.

I will try to make this as easy as possible to understand while still covering most aspects. I will also make more investing-related posts, so please let me know if you have specific questions!

There are 3 types of investments to highlight: 401(k), Roth IRA, and an Individual Brokerage Account. Today I will focus on mostly on 401k and Individual Brokerage accounts, as those are the two I have.

A 401(k) might be the investment account you're most familiar with, as it's usually an option provided by your employer. A 401(k) might be the simplest and easiest way to start your investment journey, and you only need a few dollars to start. With a 401(k) you invest your money pretax, and will pay taxes later. Though you will be penalized if you take out your money early (before age 59 1/2). If you'd like to start through your job, check in with the retirement specialist or manager. If there's no specific person, I advise you to check in with the HR or Payroll Department. Please check your investments, as I've learned that people have poured money into their 401(k) only to realize it was not invested. Where I work, my employer manages my account but gives me the option to allocate my assets to other stock options if I choose to do so. If the numbers in your account are not changing (whether positively or negatively), that is a sign it is not being invested. Again, please try to invest even a few dollars a month and start as soon as possible - the power of compounding truly is going to be in your favor.

A Roth IRA is an individual, after-tax investment account for retirement. Your money is invested after it has been taxed. When you withdraw your money, it will not be taxed again because you've already paid those taxes. Additionally, with a Roth IRA, there is no penalty if you withdraw your contributions early (though you are subject to a penalty if you withdraw your earnings before age 59 1/2).

An individual brokerage account is what people might associate with the stock market, day traders, or Wall Street. This is your own individual account, separate from your employer. You choose how much goes in, and the stocks you'd like to invest in. This account is also different because it is not specifically for retirement, so there are no penalties for withdrawing your money early. However, you should be aware of capital gains tax (usually 15%) that you will pay if your money is withdrawn less than a year after it has been invested. If you lost money during that time, I don't think it's much you have to worry about, but if you did make any money, be aware you owe 15% of that, and I believe this can be filed with your taxes.

If you're wondering why you should invest - think of the dollars sitting in your bank, not doing anything. Sure, you can't "lose them," but they're not growing against inflation. So $100 in today's savings account would only be worth $90 in 50 years (and to be honest, that's wishful thinking). I wish I would've gotten over the fear and started investing sooner. The $0.05 Bank of America gives every month does not compare. After putting off all the fear and anxiety, I have invested roughly $4,700 in the market over the past 6 months. As of today, it's grown 16.1% or $315 (just a little better, right?). I just think of what it would be if I had $10k or $30k, but I am working my way there and have a personal goal to invest $10k by the end of the year. I don't do anything but put money into my two stocks whenever I can. If I could be honest, with everything that's happened and still going on in the world, I have been pretty lucky and was able to buy stocks when they were "low," but at one point, I did see them go down even further. I had a loss of $200 (though not a loss if you don't sell), but I kept that mentality and stuck through it. If you do the same, you'll thank yourself later.

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But honestly, with the way the government's set up, it seems by 2034 we won't be able to rely on social security, so your retirement and your future are in your hands.

There's so much more for me to speak on when it comes to investing, but I find these "shortish" reads, concise and easy to understand. I'm always looking for feedback, so please let me know what you think, and please share your opinions/experiences with investing!

-K